Tax in Kenya is something that for a long time was thought best left to the experts. This perception has resulted to ordinary Kenyans being unaware of how the tax system has a direct impact their lives and livelihoods. The Kenya Tax Justice Report (available here in a printer-fiendly format, and here in wide-screen format) addresses the human welfare linkages in taxation.

Rights-based campaigns such as those calling for housing rights, and women’s rights and in particular better maternal health provisions should link up with tax campaigners who call for greater tax equity. These and many other rights can only be achieved through adequate and equitable revenue collection. Why are capital gains no longer taxed in Kenya? Why have propety taxes contributed so little in overall revenues?

Among the findings the report quotes that for the year 2001/2002 the tax effort varied from 85 per cent on the beer excise tax, to 65 per cent on personal income tax, 56 per cent for the value-added tax, while corporate tax was the lowest at 35 per cent effort.

Extrapolating for 2007/2008 the report concludes that the Tax Gap for Kenya measured as the distance between tax capacity and tax effort stood at Ksh 264 billion (US$ 3,4 billion at time of writing), meaning the the Tax Gap for the year 2007/2008 stood at 55.1 per cent.

From the revenue collection data over the past 10 years it seems that only the corporate tax effort and pay as you earn (PAYE) tax collection have improved somewhat. Whether this is due to higher profitability or greater effort in revenue collection cannot be concluded from existing data as the tax effort isn’t regularly measured.

The findings reveal that civil society needs to start monitoring government revenue collection, and also crucially the tax burden. For instance, the Value-Added Tax (VAT) – representing 29% of revenue collection in 2007/2008 – may fall predominantly on low-income people.

While basic food items such as bread, flour and milk are exempted from the 16 per cent VAT, a large part of the expenditure of poor people today are for transport and mobile phones. The Road Levy Maintenance Fund (RLMF) is financed by a per litre petroleum tax of Ksh 5.8 for petrol and Ksh 9.0 for diesel. Mobile phone airtime vouchers not only have the 16 per cent VAT, but also an additional 10 per cent excise tax. The ‘poor persons burden’ should be measured more carefully in Kenya.

The report also touches on international institutions such as the OECD, IASB, IMF and the United Nations who influence Kenya’s tax policy in many ways. How beneficial are double-tax agreements (DTA) to Kenya? One Nairobi-based tax analyst quoted in the report considered that tax losses due to the DTA with the UK may be significant:

‘In all the treaties, the UK treaty is probably the most aggressive with regards to the reduction of withholding taxes. For instance, whereas the domestic withholding tax rate on management fees stands at 20 per cent that under the UK/Kenya treaty stands at 12.5 per cent, that with Germany is at 15 per cent while with India it is at 17.5 per cent.’

The report maybe raises more questions than answers them, which is why a major part of the proposals actually ask for further research into six specific areas from trade mispricing to public finances in identifying the leakages and proposing solutions.

The good news is that there is plenty of more taxes to be collected in Kenya – and the future of the Kenyan state is in tax financing rather than debt or aid financing. Taxation has the potential to contribute for political autonomy, national unity over a shared interest and fiscal independence.

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