How the taxman can help expand Kenya’s tax base

The authority ought to lobby the National Treasury and the wider government on behalf of taxpayers. [Kibata Kihu, Standard]

This week, the Kenya Revenue Authority (KRA) announced plans of raising Sh6.8 trillion over the next three years. They hope to achieve this by expanding the tax base from 6.1 million to 8.1 million taxpayers.

A significant part of the increased tax base will come from the so-called “informal” sector and small and medium enterprises (SMEs). All else equal, these efforts are commendable.

Our tax collection as a share of the total output (GDP) has been declining in recent years – a sign of declining tax administration capacity and the Jubilee administration’s corruption-fueled investments in unproductive infrastructure.

While there is little KRA can do about the latter problem, it can certainly improve on tax enforcement. To start with, KRA should go after corporate tax cheats and close all exemption loopholes. One of the reasons the authority was established in the mid-1990s was to streamline tax administration by minimising politicians’ discretion vis-à-vis tax enforcement.

Before KRA, the Finance Ministry issued all manner of exemptions to well-connected individuals and firms. You just have to observe the massive decline in Finance Ministry Legal Notices of exemptions to appreciate the value of KRA.

That said, the authority must remain true to its mandate by ensuring we do not sink back to the bad old days. Big firms and high net worth individuals must pay their fair share. Exemptions must be minimised. The other important pillar of tax administration is effective service delivery. As KRA targets SMEs, the digital economy, creatives and property owners, it must be cognizant of the fact that aggressive enforcement alone will not be enough.

To minimise the cost of enforcement, it needs to boost tax morale. Taxpayers must be convinced that they are getting value for their money through reasonable regulation and public goods and services.

These tasks being well outside KRA’s mandate, the authority ought to lobby the National Treasury and the wider government on behalf of taxpayers. Helping taxpayers succeed is important because a thriving economy is the surest way of increasing tax revenue.

-The writer is an Assistant Professor at Georgetown University