Kenya's complex tax system can now be better understood thanks to the publication of a taxation handbook for citizens by the Institute of Economic Affairs.
The Institute has released “A Citizen’s Handbook on Taxation in Kenya”, a 50 page publication that attempts to break down the country’s complex tax system into a user friendly form for use by the average citizen.
The Institute’s CEO Kwame Owino emphasised that the country’s taxation system is far too complicated and pushed for the government to simply the process.
“Our tax system is far too complicated for the level of incomes that we have. It’s far too complicated for people to actually adhere to all those taxes,” he said.
“Even Kenya’s private sectors, who have all manners of tax accountants and people to advise them, still think that our tax system is too complicated. Maybe simplicity should be the overriding principal, but at the same time taxes need to be raised in order to pay for all the things that we do,” he explained.
Owino added that a simplified tax system will ensure that the cost of tax collection and administration is not higher than the actual tax raised.
He urged the government to develop tax policies and tax systems that are guided by certain tenets and he added that citizens should be prepared to pay higher taxes in order to create a more efficient tax system.
“Kenyans want certain services and we want government to pay salaries to its staff and to pay them adequate salaries. What that means is that we can’t come back and say that our taxes are too high,” he said.
“I think the point here is that these things require a balance so we’re saying that in asking for salaries to be raised for state workers, we are prepared to be taxed to pay for that cost,” he added.
Owino explained that the handbook seeks to fill the huge information gap on issues of tax policy, tax administration and tax performance, by using a simplified approach to help readers understand how the various taxes are designed, differentiate the different types of taxes and understand how these taxes are administered and the changes that have occurred in the tax system over the years.
He added that Kenya’s dependency on foreign aid and borrowing has declined over the last five years, averaging about 11 percent of the total budget relative to the East Africa Community member states, whose budgets are financed to the tune of 30-40 percent by development partners.
“Taxation is the key source of revenue that the government uses to provide public services to its citizenry,” he said.
“Over the last decade, tax performance in Kenya has significantly improved in nominal terms averaging about 24 percent of the size of the economy,” he revealed.
He added that this has allowed the government to finance 60 percent of the budget.
“Of the total tax revenue collected by the government over the last decade, the largest contributors are income tax at about 40 percent followed by Value Added Taxes at 28 percent,” he said.
He explained that according to the new constitution, the national government will retain the powers to impose direct and indirect taxes, while the county governments’ powers to impose tax will be confined to property taxes, entertainment taxes and other taxes that are feasible at this jurisdiction.
“This handbook indicates that to ensure fairness, government reforms towards income tax should consider widening the tax brackets by applying high marginal tax rates for high income earners as well as adjusting income tax bands to ensure that salary increases that are commensurate to inflation rates do no artificially push income taxpayers to a higher tax rate,” he said.
