THE EFFECTS OF TAX POLICY REFORMS ON TAX REVENUE IN KENYA

Abstract

Taxation provides principal lenses in measuring state capacity, state formation and power relations in a whole society at large. In the evaluation of tax reforms in the developing countries, it is important to first determine the unique role of the tax system in each particular country. The main reason for undertaking tax reforms in Kenya was to address issues of inequality and to create a sustainable tax system that could generate adequate revenue to finance public expenditures. In this respect, the tax modernization programme was introduced in the country for achievement of a tax system that was sustainable in the face of changing conditions locally and internationally. Policies were shifted towards more reliance on the indirect taxes as opposed to the direct taxes. Consumption taxes were seen to be more favourable to investments and therefore growth. Trade taxes, instead of being used for protection or revenue-maximization purposes, were seen to be more as instruments of fostering export-led industrialization. Trade taxes were therefore used to create a competitive exports sector rather than protect the import-competing manufacturing sector, as had been in the past. This study examined the reform efforts of the country with respect to revenue generated, and reviewed the strengths and weakness of the tax system as it has evolved over the years from 2003/2004 to 2012/2013. The general objective was to evaluate the effects of Tax Policy Reforms on Tax Revenue in Kenya while the specific objectives of the research study were to establish the relationship between domestic taxes policy reforms and tax revenue in Kenya and to determine the effects of customs policy reforms on tax revenue in Kenya. The methodology used was a correlational study design. Correlation research as a form of analysis correlated one variable with another to determine if there is a relationship between them. From the results regression model of Total tax revenue on, Domestic Taxes and Customs showed that all the coefficients of the model were positive and significant at 5% level of significance. Therefore, Total tax revenue can be predicted using Domestic Taxes and Customs Duty.