Effect of Tax Policy Reforms on Public Revenue Growth in Kenya

Abstract

Kenya has been over years faced by challenges of meeting its budgets resulting to too much domestic and external borrowing. KRA has been allocated more budgetary support to enhance pay structures of revenue Officers, attract and retain professional staff as well as establishing structures for identifying and dismissing incompetent and corrupt staff. This was necessary since efficient revenue collection was seen as a means to lower Government borrowing and easing pressure on inflation and interest rates as well as increasing Government revenues to meet both recurrent and capital expenditure. This study focused on measures undertaken by KRA to bring reforms that have enhanced public revenue growth in the recent few years. Kenya’s effectiveness indicators suggest that whilst the tax effort is high, there is potential to increase tax revenue collection as a percentage of GDP by reducing tax gap. The government budget estimates have grown over a period year from Ksh 508b in 2006/2007 financial year to Ksh 2.2 trillion in 2016/2017 financial year. In spite of these efforts by the government there are still a myriad of problems militating against effective and efficient tax system in Kenya and therefore this study examined the role of tax policy reforms on public revenue growth in Kenya. The specific objectives were to; to determine the effect of tax administration, effect of tax enforcement, effect of human resource revitalization and the moderating effect of business automation system on national public revenue growth in Kenya. Descriptive research design was used. The scope of the study was KRA’s five (5) regional offices namely; Nairobi, Mombasa, Nakuru, Nyeri and Kisumu. The target population was 562 where a sample of 157 respondents was drawn using stratified random sampling technique. Primary data was collected using questionnaires which were both closed ended and open ended. Quantitative data was analyzed using SPSS. Descriptive statistics were used and multiple regression analysis was run to predict the role tax administration, enforcement, human resource revitalization and business automation system on public revenue growth. ANOVA test was conducted to test the significance of the overall model and a correlation analysis was used to determine the strength of relationship between the variables. The study found that KRA tax reforms influence National public revenue growth in Kenya. Tax administration reforms, tax enforcement reforms, human resource revitalization and business automation system influence the Public revenue growth in Kenya. The emphasis should be increased on improving tax administration to broaden the tax base so that existing tax rates can be reduced without affecting government revenues. There is need for a well-functioning tax enforcement system to increase tax compliance, tax audits and tax assessment. Improving Staff recruitment process, Personnel training, HR development and compensation and rewards could be a viable solution for increasing the productivity of tax in Kenya. The efficiency of business automation system in KRA should be improved and upgraded to suit both government and citizens. The research findings were expected to benefit KRA as well as other Government collection agents.