How government can shore up its revenue collection

A customer files tax returns at KRA's Nyeri offices. [Kibata Kihu, Standard]

The primary function of government is to provide quality services to its citizens such as improving living standards, creating jobs, and proper security.

Health care, education, modern infrastructure, and paying civil servants is also the government’s responsibility. Now, for the economy to grow, governments need sustainable sources of funding to achieve the common goal of a prosperous and functional society.

However, there are limits to how much the government can receive as loans and grants from external donor countries like Russia, the US, the UK, and China and financial institutions like the World Bank and the IMF.

The Kenya Revenue Authority targets to collect Sh2.768 trillion by the end of the current Financial Year 2023/2024, and it is confident that it will achieve this to enable the government to finance its Bottom-Up Economic Transformation Agenda (BETA) and sustain the country’s economy.

Tax is the most common and important government intervention to redistribute income among the population. The tax burden on the upper-income groups is higher and lower for lower-income groups.

The government must devise a tax collection system that is fair, effective, and efficient. Making it easier to pay taxes improves a country’s competitiveness. Complicated tax systems are associated with high levels of tax evasion, corruption, and less investment including foreign direct investments (FDI).

Modern tax systems should seek to optimize tax collections while minimizing the burden on taxpayers to comply with tax laws. According to United Nations (UN) reports, developing economies collect just 15 per cent of GDP in taxes while developed countries collect 40 per cent.

Given the needs of developing countries, this low level of tax collection is putting economic development at risk. Regardless of the constraints developing countries encounter, they must strengthen their capacity to collect taxes.

There are many benefits of paying taxes. They develop and maintain critical infrastructure, and create or maintain institutions needed for the rule of law and the functioning of the democratic process. Kenyans should contribute to the development of the nation by paying taxes rather than believing that income tax is a burden.

Some reforms to improve our Kenyan tax system include curbing exemptions to boost revenue by broadening the tax base. The VAT has proved an efficient and strong revenue booster and hence its payment should be simplified.

Tax reforms should concentrate on reducing corruption and addressing non-compliance. A major tax base is lost in revenue collection because taxpayers escape taxation. We can adopt laws and regulations that include strong taxpayer protection against harassment from tax officials.

The government should design a tax compliance system that will not discourage taxpayers from participating. How taxes are raised and spent can determine a government’s legitimacy. Past generations paid taxes for the entire infrastructure we have today. Our taxes today allow us to pass those benefits to future generations.

-Dr Wanjau is an economist. [email protected]