Ideas & Debate

Tax compliance must go beyond mandate of KRA

kra

Kenya Revenue Authority staff assist taxpayers at the National Tax Support Centre, Nairobi. photo | salaton njau | nmg

A key concern for the government at the moment is how to generate and collect more revenue to more effectively fund expenditure and reduce the need for debt.

Kenya, like much of Africa, struggles with revenue generation and collection. Indeed reports indicate that the Kenya Revenue Authority (KRA) is likely to miss its targets in the current financial year.

According to the Brookings Institution, average tax revenues stand at about 15 per cent of gross domestic product (GDP) in sub-Saharan Africa, compared with 24 per cent in Organisation for Economic Co-operation and Development countries.

The government has made it clear that it seeks to generate and collect more revenue, but there are several factors that inform whether individuals and firms are willing to be tax compliant.

Research on tax compliance attitudes in the Afrobarometer journal found that there are several factors that inform tax compliance.

The first is that if individuals perceive that it is difficult to evade tax, they are more likely to have a tax-compliant attitude. Secondly, taxpayers who are more satisfied with public service provisions are more likely to have a tax-compliant attitude.

READ: KRA fires warning shot at iTax non-compliant company board directors

Thirdly, frequent payment to non-state actors, such as criminal gangs, in exchange for protection, reduces the likelihood of having a tax-compliant attitude.

Fourthly, there is indication that individuals who perceive that their social group is treated unfairly by the government are less likely to be compliant. I would add a final factor where if individuals feel government misuses or embezzles public finances, it reduces the likelihood of tax compliant attitudes.

Kenya struggles with all the factors above. First, it is relatively easy to evade tax in Kenya; reports indicate an audit of the accounts of multinationals revealed that Kenya lost $350 million (Sh35.6 billion) in three years through tax evasion.

Secondly, Kenyans are not satisfied with the provision of public services and are disgruntled by the fact that despite paying their due, they do not seem to accrue the benefits associated with compliance.

Thirdly, Kenya businesses are often forced to make onerous payments to both State and non-state actors in exchange for the licence to continue their business activity. 

Both formal and informal businesses complain of harassment, even by government officials, for bribes. Making such payments negatively informs the willingness to be tax compliant as such out-of- pocket payments are an illegal and unjust expense.

Fourthly, given the levels of tribalism in the country, it is feasible that some Kenyans may be less willing to be compliant because they are of the view that they are treated unfairly by the government.

Finally, when Kenyans hear of billions of shillings ‘going missing’ and being misappropriated, many see no point in paying tax as they are of the view that they will not benefit from compliance since their money will be ‘eaten’ by a government official rather than benefit them.

Thus, if government seeks to engender long-term compliance, these issues must be addressed. Kenyans must be satisfied with public service provision, State actors must stop demanding bribes, the government needs to demonstrate it is for all Kenyans regardless of tribe and the embezzlement of public funds must stop.

The mandate of encouraging compliance is not one that can be saddled on the KRA alone. This is an effort that must be pursued across all of government at both national and county levels.