The Effects of Taxation of Intangible Assets On Tax Revenue: Tapping The Untapped Revenue in Digital Assets, Royalties, Licenses, And Contractual Customer Relations
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Date
2018
Authors
Nguyo, Kevin Muteru
Journal Title
Journal ISSN
Volume Title
Publisher
KESRA/JKUAT - Unpublished research project
Abstract
The intangible assets group as a source of tax revenue remains untapped in Kenya and like many developing nations. Despite taking the Lion’s share of most upcoming organizations, intangible assets are not offered the necessary focus in terms of tax administration. Most developing nations lack a general framework for the valuation and measurement of the intangible assets. As a result, it becomes difficult for the relevant authorities to formulate regulations for tax administration in line with intangible assets. The International Valuation Standards organization has established three different methods of valuation for intangible assets. The international Accounting Standards IAS provides for the valuation and accounting for intangible asset through IAS 38. Despite the existence of such measures most developing nations are yet to establish the means through which the revenue authorities can measure the intangible assets. Most organizations have their unique methods of valuation. This implies that the organization retains the authority to determine the value of the assets. The main purpose of this research was to explore the untapped sources of revenue for the Kenya Revenue Authority in the form of intangible assets. Precisely, this paper focused on the characteristics of intangible assets that make them easily taxable and a sustainable source of tax revenue. Intangible assets include royalties, licenses, and intellectual properties that yield huge economic benefits for the owners. This research focused on the intellectual properties and the extent to which the KRA can yield a considerable amount of revenue through the taxation of intangible assets. The researcher employed a descriptive survey research design. A descriptive survey consists of instruments such as questionnaires, observations, and interviews aimed at collecting data from a representative sample of a given population. The study targeted companies listed at the Nairobi Securities Exchange and select KRA officials. Owing to the sensitive nature of the study, the study relied on a convenient representative sample. The data was collected through interviews, and questionnaires. The researcher analyzed the data using SPSS. The researcher concluded that there is a strong relationship between tax revenue and the valuation of intangible assets. Based on the values of intangible assets held by the organizations under review, it is evident that KRA could increase its revenue base by tapping into the intangible assets. The researcher recommends that the government should adopt one of the valuation methods developed by the international valuation standards organization. This is in order to provide a platform for the development of regulations for the taxation of intangible assets. The development of a single valuation method would allow KRA to develop means of administering taxation for the intangible assets.
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Keywords
Intangible Assets, Digital Assets, Royalties