Direct taxes on economic growth in Kenya.
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Date
2019
Authors
Gitu, Loise Wanjiru
Journal Title
Journal ISSN
Volume Title
Publisher
KESRA/JKUAT - Unpublished research project
Abstract
According to the World Bank Kenya, revenue grew by 13 percent in nominal terms in the year 2016/17 however; tax revenue grew by less than the nominal GDP of fifteen percent with tax to GDP ratio falling by seventeen percent to GDP marking the lowest level in a decade. The global lender attributed the decline to subdued growth in personal income tax and corporate income tax. Between July and September 2017, KRA missed its target of Kshs.89.6 billion by a fifth making it the highest deficit in the last 15 years. The current study attempted to investigate the impact of direct taxes on economic growth in Kenya. The research was guided by the following specific objectives: To determine the effect of personal income tax and economic growth in Kenya, to establish the effect of corporate tax and economic growth in Kenya and to assess the effect of capital gain tax and economic growth in Kenya. The research focused on three theoretical studies, which included; Keynesian theory, Equal sacrifice theory and Benefit theory. The Keynesian theory states that government mechanisms have a significant effect on economic growth. Government expenditure has a significant impact on taxation levels set which has an impact on savings and investments of individual and non-individual taxpayers. The Equal sacrifice theory advocates that income, wealth, and transaction should be taxed at a fixed percentage; that is, people who earn more should pay more taxes, but will not pay a higher rate of taxes. The benefit theory advocates that individuals should be taxed in proportion to the benefits they receive from the governments in public services and those people who receive the direct benefit of the government programs and projects out of the taxes paid should pay those taxes. The study adopted a descriptive research design with secondary data obtained on the various study variables from the KNBS from the year 2014 to 2018. The target population consisted of corporate income tax, personal income tax and capital gain tax. Data was analyzed using SPSS version 21 and was presented in tables for proficient presentation. The study showed that there was a positive significant relationship between corporate income tax and economic growth. Secondly, there was a positive significant relationship between personal income tax and economic growth. Thirdly, there was a negative insignificant relationship between capital gains tax and economic growth. The study recommends that KRA should be granted the right to access bank accounts of corporates with the help of Kenya Banking Association so as to be able to ascertain the authenticity of the taxable amount declared in a given financial year depending on the transactions conducted in the course of that time. With challenges in remission of personal income tax by employers to KRA especially by entities in the public sector the National Treasury through the CBK should withhold a given percentage of the tax for submission to KRA with the outstanding amount submitted by the respective entities. The capital gains tax rate ought to be increased from the current 5 percent which is the lowest in the East Africa region with the rates at 30 percent and 20 percent in Uganda and Tanzania respectively. This will put Kenya in a similar tax bracket as the rest of the economies in East Africa.
Description
PROJ 336.24 GIT
Keywords
Capital Gains Tax, Corporate Tax, Personal Income Tax, Direct Tax