Kenya has embarked on an unprecedented journey to enhance predictability and transparency in its tax policies with the introduction of its first-ever National Tax Policy. This comprehensive policy document addresses various challenges within the tax system, with a particular focus on the hard-to-tax sectors, a significant hurdle in the country’s revenue collection efforts.

Kenya’s economy is characterised by a substantial informal sector, which poses significant challenges for tax collection. The informal sector is typified by poor record-keeping, cash-based transactions, and limited information due to its unregulated nature. For instance, the agricultural sector, which is a major component of the informal economy, contributes an average of 21.4 percent to Kenya’s GDP. However, its actual tax contribution does not reflect this economic significance. Previous attempts to tax these sectors, such as the implementation of turnover tax and presumptive income tax, have not yielded the expected revenues. This discrepancy highlights the difficulty of integrating these sectors into the formal tax net, making them a focal point for the National Tax Policy.

The National Tax Policy sets forth several strategies aimed at progressively increasing tax yields from the informal sectors and agriculture. Key measures include enhancing property transfer taxation, expanding the presence of the Kenya Revenue Authority (KRA) in major towns and cities, developing mechanisms for collecting taxes from the informal sector, rolling out education programs for farmers and informal sector groups, and strengthening collaborations and information exchange between the national government and county governments.

One of the primary challenges of revenue collection in Kenya is determining how to effectively tax these hard-to-tax sectors. The informal sector’s unregulated nature and the complexity of taxing emerging digital economies further complicate the tax collection landscape. The policy aims to address these issues by modernising tax administration and leveraging technology to improve compliance and information sharing. Additionally, the National Tax Policy focuses on increasing tax compliance levels and reducing tax disputes. This involves reviewing integrity mechanisms, leveraging modern information technology in tax administration, and integrating tax and customs administration systems with other government and third-party systems.

The introduction of Kenya’s first-ever National Tax Policy represents a crucial step towards a more predictable and transparent tax system. By addressing the challenges posed by hard-to-tax sectors, the government aims to enhance revenue collection and ensure a fair and equitable tax system that supports national development goals. This policy is a crucial part of the government’s broader efforts to create a more efficient and inclusive tax regime, ultimately benefiting the country’s economic stability and growth.