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Tax Collection Challenges in Kenya

Tax Collection Challenges in Kenya

  • Taxation of the informal sector: There is a large informal sector in Kenya that is not within the tax net, yet all must contribute to raising the resources to finance government expenditure and thus ensure equity in taxation.
  • High incidence of tax evasion: The tax gap in Kenya has been estimated at over 40%.
  • Lack of or poor awareness of the tax laws: A taxpayer who is aware of the law is more likely to make a more rational decision on whether or not to meet their tax obligations
  • Transfer pricing: Taxing multinational corporations is difficult. Due to their size, they are able to adopt transfer pricing mechanisms to reduce their tax liabilities and shift profits to countries with lower tax burdens.
  • Taxation of e-commerce transactions: The technologies underlying e-commerce provide unique opportunities for improved taxpayer services. However, e-commerce has the potential to make more difficult transfer pricing problems.
  • There are still challenges in the application of IT in the tax administration.
  • Globalization and increasing trade within regional blocs has a direct impact on revenue, especially for developing countries like Kenya where trade taxes constitute a large proportion of total government revenue.
  • Increasing inland taxes as revenue from import duty and other trade taxes is reducing. There is the challenge of narrow tax base and the large informal business sector .
  • Kenya’s tax system is burdensome in terms of time taken to prepare and submit tax returns.