Taxation Policy Implementation Costs, Macroeconomic Factors and Revenue Collection in Kenya

Abstract

The government is obliged to collect revenue through taxation to meet its increasing financial expenditures. This study sought to establish the effect of taxation policies Implementation costs on revenue collection in Kenya Revenue Authority (KRA) by examining the effect of the tax policies enforcement costs, tax automation costs, taxpayers’ education costs and stakeholders’ engagement costs on revenue collections by KRA. The study was based on the Rational Choice Theory, Adams Smith Canons of Taxation Theory, Allingham and Sandmo Theory, Stakeholders Theory, and Theory of Planned Behavior. The study applied casual quantitative research design. The study relied on secondary data that was collected for a period of 26 years from the National Treasury and Kenya revenue authority. Since the study was based on time series data based on costs incurred in implementing different taxation policies by KRA and National Treasury, there was no need of basing the study on any sampling technique. Inferential statistics was done using both correlation and regression analysis which was used to establish the relationship between the variables under the study Diagnostic test for heteroscedasticity, serial correlation, fixed effects and autocorrelation were carried out on the data before fitting the regression model. Regression model was used to test the significance relationship taxation policy Implementation costs on revenue collection in Kenya. The results of regression analysis revealed that Tax Enforcement Costs negatively and significantly affected tax revenue collected by KRA in Kenya. The finding further revealed that Tax Automation Costs had a statistically significant positive effect on tax revenue collected by KRA in Kenya. The findings showed that Taxpayer’s education policy costs and stakeholder engagement costs were found to have a positive but insignificant effect on tax revenue collected by KRA. The study concluded that taxation policies Implementation costs are important determinant of taxation policies implementation and hence significantly impact on tax revenue collected by KRA. The study recommended that KRA should be deliberate in budget allocation on implementation of all the taxation policies to enhance their effectiveness of revenue collection. Adopting taxation policies without budget allocation for implementation of same polices affect the tax revenue collection resulting to unrealized targets.