THE DETERMINANTS OF TAX COMPLIANCE IN KENYA
Abstract
The increased need for social services and infrastructure by the citizenry has put a lot of pressure in Governments to raise additional taxes to finance public expenditure. This expenditure is best financed through tax rather than debt. As at 30th September 2017, Kenya’s gross debt level stood at Ksh 4,486.8 billion. This is 51% of the estimated gross domestic product of Ksh. 8,805 billion for 2017. This is already above the World Bank and the International Monetary Fund set Debt Burden Thresholds of 40 – 50%. Sweden’s tax-to-GDP ratio of 35% compares unfavorably to the Kenya situation where for the year 2016/2017, the tax-to-GDP ratio stood at 19%. The tax collection has continued to fall behind target. By the end of June 2017, total cumulative revenue collected amounted to Ksh 1,400.6 billion against a revised target of Ksh 1,455.4 billion representing a revenue shortfall of Ksh 54.8 billion. To address the challenges posed by the increasing public expenditure and servicing of public debt, there is need to increase tax revenue collection through tax compliance. This study therefore evaluated the determinants of tax compliance in Kenya. The research aimed at illuminating light onto the influence of determinants of tax compliance in Kenya and if there was a resultant benefit to the taxpayers for voluntary compliance. The Kenya Revenue Authority would also gauge if it was achieving the objectives of increasing tax compliance of its taxpayers. This study was based on the Ricardian Theory of Taxation, the Ability to Pay Theory of Taxation and the Game Theory Model of Equilibrium in Tax Compliance. This was a desk study intended to evaluate the determinants of tax compliance in Kenya. From various studies, it was established that small reductions in the marginal tax rate can have a general positive impact on revenue collection but this is only up to a point where the decrease in rate is sufficiently offset by the increased tax base and thereby a net increase in collections. It also emerged that low compliance cost were associated with high compliance level. Similarly, enforcement instruments, including the audit rates and the punishment function are also determinants of tax compliance. To increase tax compliance, this study recommended an increase in tax base by introducing tax on currently untaxed sources, variation in tax rates, reduction in complexity of returns and compliance procedures, increase in impact of tax audits, application of interest, penalties, fines and jail terms on noncompliant taxpayers and making the same public.
Key Words: Tax Compliance, Kenya Revenue Authority
CITATION: Sululu, A. W. (2021). The determinants of tax compliance in Kenya. The Strategic Journal of Business & Change Management, 8 (2), 105 – 114.
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