By Ronald Owili

The World Bank cites complicated tax systems, low tax morale among taxpayers and focused compliance strategies by the Kenya Revenue Authority as reasons behind Kenya’s narrow tax base.

The Bank says out of the 22.2 million working population, only a handful pay taxes.

According to the World Bank report titled Public Expenditure Review, in the FY 2013/2014, domestic taxes including agency revenues made up 72% of government revenues driven by the introduction of railway development levy, excise duty on financial services and reforming the VAT law, while international trade made up 28% of revenues.

Income tax is the biggest contributor of revenue at 50%, followed by consumption taxes at 25.5%. On the other hand, Kenya’s tax base is still not wide enough to ensure the tax man gets what is due.

Of the 22.2 million working Kenyans, only a few manage to pay their taxes.  KRA mainly relies heavily on large tax payers who are just 1,138 or 0.34% of all registered business to generate 70% of the total revenue collected.

The World Bank attributes this disparity to complicated tax systems, low tax morale among Kenyans, informality within the economy and service or compliance strategies by KRA focused on larger taxpayers.

KRA has been on an aggressive front deploying electronic tax payment systems such as iTax which it hopes would help improve compliance ration from the current 51% to 85%.

Withholding tax has also dropped to 1.1% due to delayed payments to suppliers.

The World Bank is advising the government to reduce tax expenditure, remove some tax incentives as this is not a top priority for investors, enhance tax administration and ensure policy consistency.

Pressure is mounting on the government to increase revenue sources to ensure the budget is financed aptly without incurring further and unnecessary debt, which currently stands at 2 trillion shillings.

Source: KBC