This archive report was first published on 7 January 2020.
January 7, 2020, Kenya's tax system has long been criticized for its inequitable distribution of tax burdens. The current system assumes that those with high incomes can minimize inequalities in tax collection by paying more than those with less. However, a more effective approach would be to raise public expenditure for economic development and deepen social services like education and health to strengthen the position of weaker members of society.
Those with higher incomes work harder, are creative, and generate jobs. Overtaxing them takes away money they could have reinvested to create more jobs for others. Besides, the government's policy must be to collect as much taxes as possible to avoid heavy borrowing, which enables it to service existing loans and support social expenditure.
What we need is a balanced tax system that is equitable in the collection. We need to justly and fairly collect taxes from all entities as required by law. The major problem in Kenya is tax non-compliance, with one of the most difficult taxes to collect being excise duty - a levy on products such as tobacco, alcohol, e-cigarettes, cosmetics, soft drinks, juices, and water.
Excise duty is a significant source of government revenue and can be used to deter consumption of unhealthy goods, commonly referred to as 'sin tax.' However, the problem with this levy is not the rate charged but how it is assessed and collected. Effective systems that close collection gaps can increase revenue, and fully automated tax systems are better than manual ones as they provide an intelligent system in tax administration.
Automation of the tax system brings fairness because everybody pays the correct tax, increases transparency, and makes tax administration easier. We should support the Kenya Revenue Authority (KRA) as it implements automated tax systems such as iTax, iCMS, and the Excisable Goods Management System (EGMS). EGMS will reduce problems with tax compliance, improve the efficiency of tax collection, and enable State agents and consumers to verify excisable products in the market.
With the introduction of new systems, the taxman will be able to adequately capture quality data useful in tax forecasting and supporting the understanding of market dynamics. This would portend a myriad of benefits for the country, including supporting planning.
The writer teaches at the University of Nairobi.
