Simplification of the Taxation Regime

The 5th Kenya Revenue Authority (KRA) Annual Tax Summit, held on 16 and 17 October 2019, was aptly themed “Tax Simplification and Digitisation for Economic Transformation”.

Under the banner, KRA sought to engage the taxpayers and key stakeholders with a view to educate, sensitise and discuss pertinent issues such as efforts geared toward the simplification and digitisation of Kenya’s taxation regime, as a means to increase tax compliance, and ultimately increase tax revenues.

Adam Smith, the renowned 18th century economist, introduced the world to the canons of taxation which he argued were key to the success of any taxation regime.

Vide his economic treatise, ‘The Wealth of Nations’, Adam Smith argues that the success of any taxation system hinged on four key tenets: Equality, Certainty, Convenience and Economy. While the original, or classic, canons of taxation still apply in modern taxation, various economists have through the years added to the classic canons, introducing five more canons of taxation, namely: Productivity, Simplicity, Diversity, Elasticity and Flexibility.

Of importance today, is the sixth canon of taxation, simplicity. The canon of simplicity dictates that taxation systems should be as simple and straightforward as possible. This involves ensuring that taxation policy, and the implementation of the same, is neither overly complex nor shrouded in a maze of administrative requirements. Ideally, the simpler the taxation regime, the higher levels of tax compliance to be expected. However, where the taxation regime is shrouded in complexities and administrative burdens placed on the taxpayer, it is likely that taxpayers will fail to comply with the same, either unintentionally or deliberately.

The above notwithstanding, it is evident that taxation remains one of the most complex areas of government policy. This is especially true in the era of large multinational companies that operate on a global scale, and consequently generate revenue through customers/consumers in multiple jurisdictions. The same is further complicated by the advent of the digital era which enables business to operate in multiple jurisdictions without a physical footprint in them.

The challenges of the modern taxation regime aside, the KRA has embarked on a series of transformative exercises through the years that seek to simplify the taxation regime in Kenya, both from an administrative and legislative front.

On the administrative front, the introduction of the iTax system in 2014 was as pivotal as the introduction of sliced bread! With iTax, gone are the unnecessary headaches that became the norm on tax filing day, i.e. 30 June. Rather, taxpayers are now able to file their returns from the comfort of their homes and offices. This has resulted in increased tax compliance, especially amongst individual taxpayers.

On the legislative front, the KRA is working steadfast on an overhaul of Kenya’s taxation regime, through the Income Tax Bill, 2018, which seeks to, inter alia, simplify tax legislation in Kenya.

Karen Kandie – MD IDB Capital