Tax Evasion: A Significant Drain on Kenya’s Tax Revenues - New Study Reveals

Overview

A new study conducted by a University of Nairobi MBA graduate sheds light on the adverse effects of tax evasion on Kenya’s tax revenues. As tax season approaches, the report uncovers the extent of tax evasion in the East African country and its repercussions.

Key Findings

• Tax evasion is a significant concern for Kenya, with the trend having a considerable impact on taxation’s macro-economic objectives.
• The government’s inability to meet tax revenue targets is linked to the rampant tax evasion problem.
• A study conducted with 50 tax evaders under investigation by the Kenya Revenue Authority revealed that several factors significantly influence Kenya’s tax revenue.

Factors Influencing Tax Revenue

According to the research, the following factors significantly influence Kenya’s tax revenue:

1. Total tax evasions
2. Money supply
3. Gross Domestic Product (GDP) per capita
4. Exchange rates

Impact of Tax Evasion on Tax Revenue

The study demonstrated that tax evasion plays a considerable role in reducing tax revenues in Kenya. Findings indicated that:

• Total tax evasions negatively but significantly affected tax revenue, with a coefficient of -0.728.
• Tax evasion explained 74.2% of the tax revenue identified in the study.

Recommendations

The research calls for immediate action, recommending that the government address this issue by implementing new tax policy guidelines mentioned in budget speeches and other tax policy documents.

Citations

MBA Thesis, University of Nairobi, 2014.