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Tax informal sector to plug revenue gaps, ensure equity

Nahashon Mathenge @PeopleDailyKe

One of the challenges facing Kenya Revenue Authority (KRA) is the art of mastering techniques for effective taxation of the informal sector. The sector forms an important segment of our economic activities hence the need to harness tax revenues from it.

For example, farming is the country’s biggest economic activity yet most farmers are out of the tax radar. They are also the biggest consumers of public good and services. Income derived from the sector in most cases escapes government regulation and taxation hence a number of people who earn decent income here do not contribute to the national tax kitty.

Inability by Kenya Revenue Authority to establish systems to detect and tax incomes in this sector has resulted in overburdening of taxpayers in the formal sector, who account for approximately 80 per cent of the taxes yet they constitute roughly below 15 per cent of the population.

The government should introduce tax incentives aimed at assisting those in the informal sector to account for their taxes in the simplest way possible.

Additionally, the government should introduce social benefits associated with taxpayers who dutifully account for their taxes.

These could include an enhanced health insurance benefit that entails free access to health care, tax exemptions, lower tax rates and special deductions for small taxpayers.

The universal healthcare scheme, that provides free health care at the point of service, is a good infrastructure through which to administer such incentives.

It is imperative to note that these tax benefits incentives would not only benefit low income taxpayers but would also enable KRA to give some of the potential taxpayers who have not been compliant to join the tax data base.

To make it easy for the informal sector to account for taxes, there is need to review tax administration procedures to enable taxpayers in this space to pay for taxes in a simplified manner. – Nahashon Mathenge is a Senior Tax Manager –PKF

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