A study of the productivity of Value Added Tax (VAT) in Kenya
Date
2013
Authors
Mbithi, Mercy Mbovi
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
This study set out to establish Value Added Tax (VAT) productivity in Kenya as well as
establish the factors that affect VAT productivity in Kenya. VAT productivity was
measured using autoregressive models whereas the factors affecting VAT productivity
were sourced from both taxpayers and the tax administration by use of questionnaires.
Descriptive statistics by use of simple ratios and content analysis were used to analyze
the questionnaires. It was found that VAT is responsive to changes in GDP, a
contradiction with previous studies done in Kenya. Further analysis showed that VAT
was rigid to changes in GDP up to the financial year 2004/05 and the years that brought
about the shift in responsiveness were the last seven years running from 2005/06 to
20B/l2. However the positive trend was eroded in 2011112 due to the scrapping of the
withholding VAT system. The VAT system did not possess most of the characteristics of
a workable tax system of simplicity, convenient, certainty and productivity. The study
also found that taxpayers faced challenging compliance costs and that there was neglect
of the medium and small taxpayers who were found not to be compliant because of
computational difficulties and lack of audit. The tax administration also faced difficulties
in implementing VAT laws due inadequate resources. From the above Kenya Revenue
Authority (KRA) needs to shift focus from revenue collection to coming up with systems
that are more taxpayer oriented so as to enhance their compliance with VAT laws. A few
reforms that are seen to have negatively impacted VAT collection need to be reviewed
key.among them was the withholding VAT issue. This study contributes to the existing
fe'S1ean::h on productivity of the Kenyan system by documenting the specific difficulties
encountered in enforcing VAT laws as well as difficulties faced in complying with VAT
laws. This study also brings to light the fact that VAT is responsive to GDP in contrast
with previous studies.
Description
Submitted in partial fulfillment of the requirements for the Degree of Master of Commerce
Keywords
VAT, Kenya, Taxation