Tax education should complement automation of revenue systems to enforce compliance

  • 30 Oct 2023
  • 3 Mins Read
  • 〜 by Brian Otieno

For a country to attain its developmental goals, it has to generate revenue to fund these goals. A significant portion of a country’s revenue is generated through taxation. Despite the crucial role taxation plays in a country, issues of non-compliance persist and remain a pressing challenge. Countries are facing significant difficulties in ensuring their citizens as well as businesses comply with the set tax obligations. Following the passage of the Finance Act, 2023, Kenya, in an attempt to deal with the truncated levels of tax compliance, has resorted to automation. The taxman, the Kenya Revenue Authority, indicated that it will go big on automation to improve the levels of tax compliance as a way of maximising collection.

However, the World Bank, in its programme notes to Kenya warned that automation may limit compliance by locking out the facets of the society such as the visually impaired, those without smartphones and those who are not tech-savvy. The institution also pointed out that internet connectivity remains a concern as well. In a related development, the Ethics and Anti-Corruption Commission warned Kilifi Governor Gideon Mungaro of his push for automation of the county’s revenue system, adding that automated revenue systems are an emerging conduit for corruption.

Suffice it to say that automation alone is not a solution. A comprehensive tax education scheme to complement automation is vital to ensure compliance. Tax compliance connotes a situation when taxpayers decide to observe tax laws and regulations by filing returns and paying taxes accurately. Tax compliance takes three forms to wit:

  1. Committed compliance: This is the disposition to discharge tax obligations by a taxpayer without any reservations or complaints.
  2. Creative compliance: Connotes any act by a taxpayer aimed at reducing taxes by re-evaluating income and deductible expenditure within the confines of the law, and,
  3. Capitulative compliance: Refers to the observance of tax obligations, although reluctantly.

Several taxpayers, both individual and corporate, fall in the capitulative compliance category. To remedy this, it is essential that the taxman strengthens its taxpayer education approach alongside structured and phased automation.

Taxpayer education refers to the process of educating the people on the entire process of taxation, concentrating on the rationale of paying taxes. Taxpayer education plays three key roles: imparting knowledge on taxes and tax laws to foster compliance, changing and shaping taxpayer attitudes towards taxation and building up the culture of voluntary compliance to increase tax collection.

Kenya’s approach, particularly in light of the Finance Act 2023, which has received a mixed reaction from the populace, should focus on a comprehensive taxpayer education programme. The aim of the taxman should be to make the tax laws less complex to reduce the cost of compliance and enhance tax convenience. To do this, information around tax should be broken down into easy-to-read information, partner with stakeholders in the education sector to incorporate basic tax education into the school curriculum, and have in place regular updates on taxes.

It is also imperative that the taxman, using their database, profiles and remains aware of the history of the taxpayers. This allows them to appreciate their attitudes towards tax and their compliance history whilst also identifying their educational needs as not all forms of tax education will turn out to be successful for tax compliance. While a section of Kenyan society requires general knowledge of tax, there are others that may require fear-appealing messages.

Tax education has a significant influence on tax compliance. To ensure it is fully effective, the content of tax curricula needs to be aligned with the educational needs of society. It is safe to say that where the level of tax knowledge is high, the levels of tax compliance will definitely be high.