Economy

Kenya races to meet World Bank's tax reforms target

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GRAPHIC | GENNEVIEVE AWINO | NMG

Kenya’s tax revenue as a percentage of economic output or GDP is set to cross the 15 percent threshold in the current 2023/24 fiscal year, meeting the World Bank’s minimum recommendation.

The ratio of tax revenues to GDP is set to reach 15.8 percent in 12 months to June 2024 beating Kenya’s regional peers; Uganda at 13.2 percent and Tanzania at 12 percent.

The country’s tax revenue ratio is set to climb from 14.3 percent of GDP in the year ended June 2023 in the backdrop of elaborate reforms to tax collection and administration.

The government has highlighted aggressive revenue mobilisation including the deployment of technology by the taxman as actions set to enhance domestic tax collection.

“Emphasis will be placed on aggressive revenue mobilisation through a combination of tax administrative and tax policy reforms. In this regard, the government will also finalise the development of the Medium Term Revenue Strategy for the period 2023/24 to 2026/27 which will provide a comprehensive framework for guiding tax reforms in the medium term,” the National Treasury stated in its final 2023/24 Budget Review and Outlook Paper, published on Wednesday.

The exchequer has also targeted efforts towards reforming, modernizing and simplifying tax laws and processes to enhance compliance and expand the tax base.

Kenya Revenue Authority (KRA) has for instance deployed military-trained revenue assistants with the goal of targeting and bringing players in the hard-to-tax sectors such as small and medium enterprises to the tax net.

Technology has meanwhile come in handy in curbing revenue leakages and has included the enhancement of iTax and Integrated Customs Management System and the full roll-out of e-TIMS.

The World Bank Group puts the minimum desirable tax-to-GDP ratio at 15 percent. The multilateral lender says revenues below the threshold are inadequate to finance basic State functions.

Kenya has until this year stuck below the lower desirable tax revenue limit revealing weaknesses in revenue management including widespread tax exemptions, corruption and shortfalls in the capacity of tax and customs administration.

The World Bank has favoured tax rate increases as one of the avenues for greater revenue mobilization in addition to reducing bottlenecks including improving taxpayers' trust and moving tax administrations to the digital frontier.

“Most African economies have the potential to mobilize more in taxes. This can be done through better tax administration including value-added-tax, broadening the tax base by removing cost-ineffective tax expenditures, and increasing excise taxes including on alcohol, tobacco and soft drinks,” the World Bank stated in a note.

Despite sitting pretty above its peers by collecting more revenues as a share of GDP, Kenya trails larger economies on the continent such as South Africa whose revenues in 2021 as a share of economic output stood at 25.9 percent.

Other countries on the continent with higher tax revenue ratios to GDP include Tunisia at 20.1 percent (2012), Seychelles 30.6 percent (2020), Namibia 28 percent (2021) and Mozambique 23.3 percent (2021) according to data provided by the World Bank.

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