For the average taxpayer, taxation is an indirect benefit and a direct burden.
While they tend to understand the necessity of tax collection, in relation to the provision and availability of public goods and services, the same taxpayer often looks at their tax expense as an undesirable and unnecessary expense.
This latter fact is all the more true in countries with high corruption levels and low accountability, whether perceived or true. This contradictory perception presents a challenge to tax authorities.
Primarily, tax authorities have to determine how to make paying taxes seem directly beneficial to the taxpayer, in a manner that negates the burden posed by a tax expense.
Numerous studies have been conducted in a view to solve this social dilemma. While there may not be a one-size-fits-all solution, two factors have been noted as playing a role in increased tax compliance: power and trust.
Through the exertion of power, for instance the implementation of fines for non-compliance, tax authorities enforce compliance.
Similarly, through establishing trust in the legitimacy of the tax authority, and the benefit of taxation to the common good, tax authorities foster voluntary compliance.
While the end remains the same, that is, compliance, experience notes that the latter option continuously achieves higher levels of compliance.
The above represents a challenge currently faced by the Kenya Revenue Authority.
It is no secret that the KRA is under immense pressure from the National Treasury to ensure that revenue collection targets are met.
This, however, should not be an excuse for the KRA to abrasively utilise its constitutionally enshrined authority to boost revenue collections.
The revenue authority should consider that enforcing tax compliance through hostile and coercive measures runs the risk of losing the trust of taxpayers. As such, while bullish tactics may serve their purpose in the short term, they will not hold their weight in the long term.
Rather than antagonistically enforcing compliance, the KRA should task itself with actively gaining the trust of taxpayers in order to cultivate voluntary compliance. It goes without saying that by gaining the trust of taxpayers, cooperation between the taxman and taxpayer can be actively pursued.
In order to achieve these desired levels of trust, and ultimately cooperation, between the taxman and taxpayers, it falls to the KRA to not only educate the taxpayer on the direct benefits of paying taxes, but also to ensure transparency in the taxation process, and ultimately accountability in the manner in which tax revenues are utilised.
However, this is not a task for the KRA alone, but rather the entire governmental structure. While the taxpayer should give to Caesar what belongs to Caesar, Caesar too is duty bound to appropriately utilise that which is entrusted to him.
Karen Kandie, MD, IDB Capital
