By Nikhil Hira
It seems just like yesterday that I was analysing the 2011 Budget. I remember talking about widening the tax base, which is something that has been a topic of discussion for long. The matter still attracts interest these days even as politics and other such interesting issues take centre stage.
But why would this rather mundane and boring subject attracts so much attention. Well, when the few are paying taxes for the many, it is bound to be an emotive issue.
Perhaps it is worth setting the scene first. The Kenya we live in today is vastly different to that of the past. Who would have thought that we would find ourselves on the brink of civil war during the last General Election or that the International Criminal Court (ICC) would be crawling all over us?
Who anticipated that the world would face perhaps the worst recession ever and that it would impact us quite as much as it has?
The impact of these events has seen an increasing pressure on revenue collection and while the task of collecting it goes to Kenya Revenue Authority (KRA), the burden is felt by us.
A coalition Government has resulted in a spiralling expenditure of a recurrent nature that has to be financed. The uncertainty (not to mention the cost) of the next election and the pending ICC trials has had an impact on investor confidence and this is also felt in our own economic activity.
Devolution to county governments under the new Constitution will simply add to the pressure.
Interest rates are at astronomic levels, as Central Bank tries to stabilise the shilling and cool inflation by increasing its lending rate (Central Bank Rate).
On the positive side, revenue collections since the start of the new millennium has averaged almost 18 per cent of the gross domestic product (GDP) as reported by the World Bank.
When you compare this to the BRIC countries – Brazil (16 per cent), China (nine per cent) and India (ten per cent) - we aren’t doing too badly at all. South Africa is sitting in the region of approximately 26 per cent.
Given this impressive percentage, why are we always under such pressure? My guess is that the denominator (GDP) is not as high as it could be.
So what do we need to do to spread the burden of meeting and indeed increasing revenue targets?
Revenue authorities (and ours in Kenya is no exception) are addressing compliance risks upfront by means of educating taxpayers and improving services and cooperation. The ultimate aim being to make compliance easier, and thereby enhance revenue collection. Taxpayer sensitisation plays an important role and Kenya Revenue Authority is actively doing this.