Taxpayers in any system of taxation are continually faced with the choice of being honest in their tax affairs, or engaging in a course of conduct that involves deception and deceit. Taxpayers consider many factors when they are confronted with the decision whether to comply with the law. These factors include: the rates of taxation, including the total tax rate when all taxes, levies, and charges are considered; the fairness or perceived fairness of the system; the efficiency and effectiveness of the tax agency; the ease of filing and paying; the complexity of the tax laws; the extent of corruption, real or perceived; and the fiscal integrity of the government and its wise (or wasteful) use of public funds.
Although high tax rates and cumbersome tax laws can have a negative effect on taxpayers’ willingness to comply with all the requirements of the law, no single factor encourages or discourages compliance more than the attitude of the taxpayer, as he examines the fairness and efficiency of tax officials and procedures. When taxpayers believe that the tax agency is fair in its dealings with taxpayers, and is efficient in how it conducts operations, they are more inclined to be honest in their tax affairs.
When taxpayers are honest, compliance rates climb and revenue collections increase. Increased revenue collections can lead to improved government service – including in such key areas as education, infrastructure, and health care – and ultimately a reduced tax burden.
Respondents in this diagnostic believe the total tax rate in Kenya is too high, and the difficulties of filing and paying were described by some as enormous. The attitudes of taxpayers, however, have been improving in recent years, as the Kenya Revenue Authority has embarked upon an initiative designed to increase the fairness of the system and improve the efficiency of its operations. While the KRA can be considered progressive, committed, professional, and technically advanced, it still falls short of meeting international best practice in many areas.
The recommendations section of this chapter describes several administrative improvements that can be made to further advance the fairness and efficiency of the KRA’s operations and move them closer to international standards. Implementation of these recommendations will instill greater taxpayer confidence in the system and result in greater taxpayer participation, and, as a result, increase revenue collections. Fortunately, the area of Paying Taxes shows relative promise: the BizCLIR scores for Paying Taxes are the highest in this report, with each area of inquiry showing generally positive trends.
The information provided on this Web site is not official U.S. Government information and does not necessarily represent the views or positions of the U.S. Agency for International Development or the U.S. Government.
