President William Ruto emphasized the importance of tax compliance and revenue generation for Kenya’s economic growth at the Tax Payers’ Day Awards held at State House. His speech underscored the role of every eligible taxpayer in supporting Kenya’s development agenda. His message was clear: no entity should evade taxes or gain unfairly from the contributions of others. This push for increased tax compliance, Ruto argued, aligns with his administration’s commitment to transforming Kenya’s economy through domestic revenue mobilization.
This article delves into the President’s strategic goals, the importance of broad-based tax compliance, and the mechanisms and partnerships the government intends to use to achieve these objectives.
A Call for Fair Contribution to National Development
Addressing the audience, Ruto expressed his gratitude to the millions of “patriotic Kenyans” who contributed to Kenya’s tax system, noting that over eight million tax returns were filed by June 30, 2024, exceeding the target by 26%. He described tax compliance as not only a legal obligation but also a civic duty that symbolizes Kenyans’ shared commitment to nation-building.
The President highlighted the importance of fairness and equity in the taxation system, calling for a culture where all eligible taxpayers contribute their fair share. “Tax compliance is not only a legal and civic duty but also signifies our shared commitment to contribute towards national transformation,” Ruto stated. This shared commitment, he noted, would help to create a thriving economy that benefits all Kenyans.
Kenya’s Revenue Challenges and Ambitious Targets
Currently, Kenya’s revenue collection sits at around 14% of the Gross Domestic Product (GDP), a figure well below the East African Community’s target of 25%. President Ruto set ambitious targets, aiming to increase Kenya’s revenue to 22% of GDP within the next decade. Achieving these goals requires not only tax compliance but also a shift in mindset among Kenyans, fostering a collective sense of responsibility for funding the nation’s development.
To support this transition, Ruto aims to boost compliance from 70% to 90% by 2026-27, a significant leap that will require rigorous enforcement, public education, and improved systems. The government has already begun implementing measures to support these goals, such as expanding the tax base and utilizing digital systems to track transactions and deter tax evasion.
Expanding the Tax Base
Expanding the tax base is central to Ruto’s strategy, especially by incorporating hard-to-tax sectors such as the informal economy and digital businesses. The President emphasized that while these sectors are notoriously challenging to tax, they are also crucial contributors to the economy. Without their inclusion in the tax system, it is unlikely Kenya will reach its revenue targets. Ruto stated that addressing these sectors would require innovation, collaboration, and a determination to create inclusive systems that can capture income generated across diverse segments of the economy.
Strategies for Hard-to-Tax Sectors
- Informal Sector Taxation: Kenya’s informal economy, which includes small traders, jua kali artisans, and street vendors, remains largely outside the tax net due to its cash-based transactions and minimal formal records. Bringing these businesses into the tax system requires innovative approaches, such as simplified tax regimes, low-cost digital payment solutions, and education campaigns to demonstrate the benefits of tax compliance for small businesses.
- Digital Businesses: The rapid growth of digital platforms has added a layer of complexity to Kenya’s tax system. These online businesses, many of which operate across borders, present unique challenges for tax collection. Ruto noted that Kenya must adopt regulatory frameworks that capture the revenue generated by digital companies without stifling innovation or economic growth. This might involve enforcing electronic invoicing, creating digital tax systems, and enhancing data collection for accurate tax assessments.
Government-Taxpayer Reciprocity
For the government to achieve its revenue targets, there must be a sense of reciprocity between the government and its citizens. President Ruto emphasized that the relationship between taxpayers and the government should be symbiotic, where both parties benefit. The government, he argued, has a responsibility to ensure that taxes collected are used efficiently and effectively, promoting development that creates jobs and wealth for the citizens.
This idea of reciprocity requires transparent governance, where taxpayers can see the direct impact of their contributions. Effective public investment in infrastructure, healthcare, education, and security can enhance public trust, leading to greater compliance and willingness to contribute. Ruto’s emphasis on effective policies and efficient public investments underscores his administration’s commitment to fostering an environment where taxpayers feel that their contributions are driving positive change.
Achievements in Tax Base Expansion
Ruto’s administration has already achieved some notable successes in expanding the tax base. The Tax Base Expansion Strategy generated Sh24.6 billion in the 2023-24 financial year, adding 1.2 million new taxpayers to the revenue base. This milestone highlights the potential for further gains if the government can sustain its outreach efforts and improve systems that simplify tax compliance.
Innovations in Tax Collection
- Blockchain Technology for Landlords: The introduction of blockchain technology to manage landlord tax obligations is an example of how digital innovation can streamline tax collection. The Monthly Rental Income program, enabled through the Block Chain Management System, has helped bring landlords into the tax fold. This digital ledger system ensures transparency and traceability, allowing the government to monitor rental incomes and ensure tax compliance.
- Electronic Tax Invoice Management System (ETIMS): To reduce VAT fraud, the government implemented the Electronic Tax Invoice Management System, which has helped Kenya collect Sh314 billion from over 280,663 VAT-registered taxpayers. This system minimizes human error, reduces opportunities for fraud, and improves efficiency in VAT collection, which has historically been prone to abuse.
Ensuring Equity and Fairness in Tax Revenue Mobilization
Ruto’s administration aims to uphold principles of equity and fairness in its tax policies, ensuring that every eligible taxpayer contributes to Kenya’s development. As the President pointed out, fair tax measures are essential for achieving equitable national growth, where all segments of society share the responsibility and benefits of economic progress.
To maintain this fairness, the government is committed to avoiding regressive tax policies that disproportionately affect low-income earners. By focusing on the untapped sectors, the government can spread the tax burden more evenly, ensuring that all taxpayers contribute according to their financial capacity.
The Role of Technology in Enhancing Compliance
As part of the broader strategy, the Ruto administration has embraced technology to streamline tax collection and prevent evasion. Systems such as blockchain, electronic invoicing, and data analytics are essential for creating a transparent, efficient tax system. By automating processes, the government minimizes loopholes, enhances data accuracy, and ensures that revenue from all taxable sources is captured.
In a time when digital transformation is reshaping economies worldwide, the integration of technology into Kenya’s tax system is timely. These tools not only reduce manual oversight but also instill confidence in taxpayers who can trust that the system is fair and well-managed.
Conclusion: Towards a Prosperous, Self-Reliant Kenya
President Ruto’s speech at the Tax Payers’ Day Awards reflected a vision of a self-reliant Kenya, driven by its people and fueled by fair tax contributions. The President’s commitment to enhancing tax compliance, expanding the tax base, and ensuring equity in tax policies demonstrates his dedication to fostering a culture of accountability among taxpayers.
The journey to reach a revenue-to-GDP ratio of 22% will not be easy, but with the right policies, technological innovations, and public buy-in, Kenya can achieve these ambitious targets. The success of these initiatives relies on a collaborative effort between the government, taxpayers, and private sector stakeholders who all share a stake in Kenya’s economic future.
Ultimately, a well-structured tax system that ensures every eligible entity pays their share is foundational to sustainable development. It will enable Kenya to fund essential services, reduce dependency on external borrowing, and create a prosperous economy that serves all its citizens. As the country progresses towards these goals, the government’s commitment to transparency, efficiency, and fairness will be crucial in achieving an economically inclusive and resilient Kenya.
