Acknowledging the untapped potential for tax collection within its informal sector, which employs around 15 million people, representing an overwhelming 83% of the total labor force, Kenya has launched a mission. The objective is not merely revenue augmentation but also addressing challenges confronted by this sector to welcome these businesses into the tax bracket. In this article, we investigate both KRA strategies and how this maneuver will affect our country’s economic terrain.
The Harnessing of Tax Potential:
At the 2023 Annual Tax Summit, Humphrey Wattanga, the Commissioner General of KRA, illuminated the enormous tax potential within Kenya’s informal sector – a sector with expansive employment capabilities. He underscored its need for encouragement towards compliance with tax regulations. As Wattanga phrased it, “This represents significant untapped revenue through potential taxes and warrants facilitation to ensure regulatory adherence.”
Aim for Ambitious Revenue Goals:
Setting its sights on ambitious revenue targets, the KRA aims to collect Ksh 2.8 trillion by the end of the financial year in 2023/2024. It further targets surpassing the notable Ksh 3 trillion mark during subsequent years. Achieving these goals is no small feat; thus, viewing tapping into the informal sector as a pivotal strategy. In the last financial year, revenue collection recorded an upward trajectory of Ksh 2.2 trillion, marking a significant increase from Ksh 2.03 trillion in 2021/2022.
We Actively Support the Bottom-Up Economic Transformation Agenda:
Not merely for replenishing governmental funds, tax collection serves as a vital element in funding the Bottom-Up Economic Transformation Agenda (BETA). This agenda is crucial to sustaining Kenya’s economy. The KRA strategizes around integrating the informal sector – primarily composed of Micro, Small, and Medium-sized Enterprises (MSMEs) – into its tax bracket. Wattanga asserts, “This, therefore,” a crucial piece of information demanding action. It underscores the necessity for strategy design and policy interventions. The aim? To position KRA within this sector’s lucrative tax bracket.
Simplifying and Harmonizing Taxes:
Taking a multifaceted approach, the KRA aims to achieve this goal. It collaborates with the National Treasury in establishing policies. The objective is threefold – simplifying, harmonizing, and reducing the plethora of taxes imposed on the informal sector. Thereby, alleviating these businesses’ tax burden while also streamlining our overall tax system.
For Tax Compliance Education:
This strategy prioritizes education. The KRA will proactively educate traders operating within the informal sector on tax payments’ significance. They aim not just for compliance but to integrate tax obligations naturally into these businesses’ operations through fostering awareness and understanding.
Endorsement by an Expert:
KRA’s initiative receives a warm welcome from tax experts and technocrats. They emphasize the necessity of policies – ones that forge an unambiguous, predictable tax system. This, in effect, can enhance tax morale, instilling fairness, transparency, and accountability. The expected outcome: improved compliance with taxes, a simplified yet resilient system capable of weathering economic shocks.
Tax Systems That Demonstrate Resilience: An Exploration into the Factors Underpinning Successful Adaptations in Shifting Socio-Economic Landscapes:
The Economic Planning PS, James Muhati, underscores the significance of robust tax systems. Such mechanisms guarantee revenue recovery even amidst external economic hurdles. By enriching tax policies, a process that constructs a legal framework for introducing incentives and providing guidance and certainty, we contribute to an integrated and sturdy taxation system.