Policy Brief No. 10 of 2006 on Lessons From Kenya's Tax Reform Experience

Abstract

Kenya, like many developing nations, has attempted to reform its tax system over time, with the impetus coming from the increasing complexity of the tax codes, narrow tax base and concerns with fair distribution of tax burden. There were clearly postulated objectives under the tax reform efforts, among them making the tax system more equitable, simplifying the tax system and also raising more revenue.The objective of raising revenue was met, but Kenya still faces challenges with regard to the other objectives of the tax system. Unlike many other Sub-Saharan African countries, Kenya is currently a high tax yield country with a tax revenue to GDP ratio of over 20 percent. The country is able to finance most of its expenditure from tax revenue, with international aid and grants meeting a smaller proportion of total expenditure. Despite this achievement, Kenya still faces problems with its tax system. As acknowledged in the Economic Recovery Strategy for Wealth and Employment Creation (2003-2007), the tax system is complex and cumbersome, and is characterized by uneven and unfair taxes, a narrow tax base with very high tax rates and rates dispersions with respect to trade,and low compliance.