While wealthier households pay a larger share, World Bank study shows that higher taxes do not translate to increase revenue.

Higher levies on the rich have pushed them to devise ways to avoid the taxman’s net, the World Bank has said.

In its latest Kenya Economic Update, the global lender noted that higher taxation against the wealthy might have denied the country billions of shillings in revenues.

This is as the wealthier households with capacity aggressively engaged in tax planning through various strategies such as profit-shifting to low-tax territories known as tax havens.

Larger share

The World Bank Kenya’s senior economist Urz Pape said higher tax-rate for wealthy households increased progressivity of the tax regime.

However, while richer households pay a proportionally larger share, research shows that the Government does not necessarily get to collect more in taxes.

“If the marginal tax rate for wealthier households becomes higher, those households have more incentives to engage in tax evasion and tax avoidance,” said Pape in an email.

“In other words, higher marginal tax rates do not always and automatically translate into higher revenues, and that is especially true for wealthier households, which can have more capacity to evade or avoid taxes,” he added.

The World Bank had noted in its 18th edition of the Kenya Economic Update that the rich seem to shoulder a huge chunk of the country’s income tax.

In the past, Kenya Revenue Authority Commissioner General John Njiraini, is reported to have lashed at some multinational corporations that use this loophole to fleece the country by engaging in “abusive tax planning”.

Tax experts have argued that although tax avoidance is immoral, it is not illegal. Experts exploit loopholes in the law to ensure that their clients do not pay more in taxes. Unfortunately, the poor do not have such options.

The World Bank’s sentiments could rattle certain quarters including advocacy groups such as Oxfam which has argued that the rich in Kenya do not pay as much taxes as they should.

They say that the current tax regime has festered inequality in the country.

The charitable organisation in a report last year, noted a huge income disparity in Kenya with about 8,300, or less than 0.1 per cent of Kenya’s population, owning more wealth than the bottom 99.9 per cent, or more than 44 million people.