Increasing tax revenue is critical for economic growth and development in developing countries such as Kenya. Governments can support important services, infrastructure projects, and social initiatives with adequate tax income. However, increasing tax income while fostering economic growth and social equality can be a difficult undertaking. In this article, we will look at various tax-raising tactics that Kenya and other developing countries can use.
Tax Policy Reform.
Implementing effective tax policy reforms is one of the most essential measures in raising tax revenue. This entails evaluating the current tax structure, identifying areas for improvement, and implementing the necessary modifications. In Kenya, this could mean simplifying the tax structure, eliminating tax evasion and avoidance, and changing tax rates to ensure they are both fair and efficient.
Broaden the Tax Base.
It is critical to broaden the tax base in order to increase tax revenue. In Kenya, the informal sector accounts for a sizable share of the economy, making tax collection difficult. Encouragement of formalization through incentives for firms to register and pay taxes can greatly increase the tax base. Furthermore, property taxes and capital gains taxes can be investigated further to diversify tax revenue streams.
Improve Tax Administration.
Efficient tax administration is critical for effectively collecting taxes and reducing tax evasion. Developing countries should invest in updating their tax collecting systems, putting in place electronic tax filing and payment procedures, and improving tax compliance measures. This can help to close the revenue gap and increase revenue collection.
Tackle Tax Evasion and Avoidance.
It is critical to combat tax evasion and avoidance in order to increase tax collection. Transparency and compliance can be improved in developing nations by enforcing anti-avoidance rules, increasing international tax cooperation, and strengthening tax audit capacities. This can be accomplished in Kenya by strengthening the Kenya Revenue Authority (KRA) and working with foreign organizations to exchange tax-related information.
Promote Financial Inclusion.
Improving financial inclusion is not simply a social goal, but also a tax revenue plan. When more people have access to formal financial institutions, tracking and taxing their financial activity becomes easier. Encouraging the use of bank accounts, mobile money, and digital payments can aid in the reduction of the informal economy and enhance tax collection.
Invest in Education and Awareness.
A well-informed public is more likely to readily comply with tax regulations. Developing countries should invest in tax education and awareness programs to educate residents and businesses on the necessity of paying taxes and how the proceeds are used to benefit the country. Such programs have the potential to change public perception and reduce tax evasion.
Implement Progressive Taxation.
Progressive taxation, in which higher-income individuals pay a larger share of their income in taxes, can be an effective strategy to increase tax revenue without putting the poor at a disadvantage. In Kenya, this can be accomplished by modifying tax rates and instituting tax bands that take income levels and social justice into account.
Combat Corruption.
Corruption can stymie efforts to collect taxes. Developing countries, particularly Kenya, must prioritize the reduction of corruption in tax administration and the improvement of governance. Transparency, accountability, and anti-corruption efforts can all have a good impact on tax collection.
In conclusion, in developing countries like Kenya, increasing tax revenue is critical for economic growth and social development. These countries can strengthen their revenue collection systems by enacting tax policy reforms, extending the tax base, enhancing tax administration, and combating tax evasion and avoidance. Promoting financial inclusion, investing in education and awareness, instituting equitable taxation, and eliminating corruption are all important steps toward increasing tax revenue. With the implementation of these initiatives, developing countries can look forward to a more sustainable and fair fiscal future.