| dc.description.abstract | The government introduced the Sales Tax Act in 1973 and implemented it in 1974 with the goal of raising government revenue. The sales tax revenue expanded to include both imported and domestically manufactured goods. In 1990, Kenya implemented Value Added Tax (VAT) following the Tax Modernization Programme (TMP) the country had been pursuing since 1986 to make its fiscal system more efficient, equitable, modern, and progressive, and eventually broaden its tax base. The TMP aimed to increase the tax revenue to GDP ratio from 22 per cent in 1986 to 24 per cent (later revised to 28% in 1992) in the mid-1990s, a target that has been elusive for Kenya’s economy (Figure 1). VAT is viewed as a successful collection method because it encompasses value added to each commodity by a company across all stages of production and distribution, and systems for zero-rating or exempting goods and services and computed both output and input taxes. Consequently, VAT was expected to mobilize more revenue for the government and be the dominant tax revenue source.
However, VAT revenue performance in Kenya has been quite erratic since its inception as signaled by the VAT revenue to tax revenue ratio, VAT revenue to total revenue ratio and the VAT revenue to GDP ratio (Figure 2). The proportion of VAT revenue to total tax revenue in 1990/91, when VAT replaced sales tax, was 36.4 per cent, the highest ratio ever recorded since implementation of VAT Act, 2013. As of 2022/23, the proportion of VAT revenue to tax revenue was 26.1 per cent. | en |
