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Tax evasion, Kenya’s tragedy of the commons

Thursday November 14 2019

By MICHAEL CHERAMBOS
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Free riders plague every society. People like to benefit without contributing to the country’s development. This has cost Kenya dearly, as people avoid paying taxes.

Considering that tax is one of the government’s primary sources of revenue, recent National Treasury statistics revealed that tax evasion will increase the budget deficit by 6.2 per cent. This is up from 5.9 per cent in 2018. This deficit close to Sh500 billion a year.

The government plans to strengthen Kenya Revenue Authority (KRA) as he seeks to nip tax evasion in the bud. While many Kenyans struggle just to make ends meet, the wealthy have benefited from their positions of privilege. That is not to say that all wealthy individuals are dishonest.  

Creative ways have been found to avoid paying taxes. Tying money up in legal disputes is one such way. Recent estimations reveal that over 1,000 cases are currently dragging in Kenya’s legal system.

This has deprived the State of close to Sh300 billion in revenue. According to the government, many of these cases have been caught up in bureaucracy for over two years! Finally, we have a president who cares.

The first step in tackling this issue is compelling Kenyans and companies to pay taxes whether or not they have cases dragging in court.

Many powerful Kenyans and companies have invested their money in court cases as the State suffers.

They create complex cases hoping the State will give up on revenue owed.

Instead of allowing people to wait until the court ruling is out before they pay, the government will allow money owed to be collected immediately. Only when courts make rulings, will Kenyans claim funds owed to them.

The State should let tax cheats carry their burden. Cases must not drag in court. The President has set a three-month cap on resolving pending tax disputes. This will encourage an efficient resolution of disputes.

But this is not the only solution to the problem. Apart from allowing fast collection of debts, The State is working to strengthen the existing tax collection framework and the Kenya Revenue Authority.

Instead of focusing on prolonged and expensive court proceedings, the government is encouraging alternative arbitration methods. If many cases can be settled out of court, why burden our already overworked justice system with additional responsibilities?

A deep understanding of human psychology has also played a role in the development of this plan. Many people can be given incentives. Many of those who have evaded taxes in the past, desire to come clean but do not know how.

They fear the potential monetary repercussions of admitting past wrongdoing and paying taxes.

Do not weaponise KRA. Let us not criminalise people”.

Mr Cherambos comments on topical socio-political issues. [email protected]