15.0 TAXATION AND DEVELOPMENT

The taxation in Kenya is one of the highest in the world today. The Kenya Revenue Authority (KRA) is the Government arm in tax collection and has been to some extent efficient. It is however important that the collection should be low enough to stimulate economic growth. The taxation in Kenya include the Corporation Tax, the Value Added Tax., Advance With Holding Tax, Petroleum Development Levy, Road Maintenance Levy, Vehicle Inspection Fees, Sectoral Trade Licenses, the Customs and Exercise Duties, the Local Authority License, the Visa Fees etc.

All these taxes have both benefits and disadvantages to the economic development of the Country. High taxes hamper growth because it is a disincentive to investors. Lower taxes on the other hand encourage more investments.

Taxation has great impacts on the environmental health, agriculture, banking and sports. All of the imported products add to the transaction costs. The costs of agriculture inputs, medical drugs and equipment are currently high mainly due to the custom duties and value added taxes that are levied on them. The agricultural growth has been negatively affected by such taxes with the result that the agriculture output is low and uncompetitively priced. This has resulted in food poverty and food insecurity. It has also affected the horticultural export as Kenyan products become high due to the production costs.

In order to improve the performance of tax collection and use, the DP Government will implement the following measures:

1. Enhance the decentralization of taxation procedures in work places

2. Provide appropriate taxation system as a source of redistribution of income through social subsidies and aids to the poor and vulnerable through streamlined and progressive system of taxation

3. Reduce the corporation Tax from the current 30% to 22.5% by 2012.

4. Reduce duties and Value Added Tax on the agriculture equipment inputs including fertilizers, chemicals etc.

5. Reduce duties and value added taxes on all health related products e.g. medicine

6. Reduce taxes and expand tax base

7. Provide tax incentive for financial institutions operating in the rural areas.

8. Intensify educational programmes related to tax payments to encourage people to pay taxes

9. Relate the provision of public services in other Government department with the tax payments as a means of expanding the tax base.

10. Provide tax incentives to environmental friendly industries.

11. Provide tax incentives for low cost housing development.