The Constitution envisioned a participatory approach to policy making where public policy, including tax policy, is made with the participation and input of citizens. So there was a rich discourse on tax policy and regulatory frameworks.
These deliberations have been and continue to be decisive in the development of a tax system in harmony and aligned with the economic and social context of the country.
An effective tax system conforms to the principles of taxation, which include fairness, neutrality, efficiency, predictability, simplicity and fairness. A tax system which takes these principles into account ensures that not only the tax is borne proportionately, but also that the distorting effect of the tax is minimized.
To this end, a number of political and administrative measures have been adopted or are in the process of being institutionalized. First, annual finance laws and occasional tax laws (amendments) make changes to clarify sections of the law, entrench good practices, broaden the tax base, or introduce legislation to combat against tax evasion and fraud. Being participatory and benefiting from submissions to the National Treasury from various stakeholders, including member organizations of businesses and professional bodies, these amendments regularly generate solid and healthy debates.
Second, a tax system should also be guided by a national tax policy. A national tax policy is a comprehensive framework that broadly defines the parameters of taxation. These include the rules and guidelines for regulating taxation, the taxes to be collected and the guiding principles of the tax system.
In the quest to align with the principles of taxation, a national tax policy provides a medium-term planning horizon for taxpayers, thus instilling predictability, as it is revised every 5 to 10 years depending on the jurisdiction. Kenya has started initial reflections on developing a national tax policy.
Third, with the establishment of the medium-term expenditure framework which defines a three-year public expenditure plan, the development of the corresponding revenue strategy is currently underway. The strategy helps align spending and revenue mobilization, formulating a series of tax system reforms and revenue mobilization mechanisms.
Fourth, countries provide tax incentives for a number of reasons: to support specific sectors where there are skills gaps by incentivizing investors who can facilitate skills transfer, attract investment and stimulate economic growth, promote exports, create jobs or enable strategic national programs such as Vision 2030 and Agenda Big 4. By forgoing potential income, the country expects a multiplier effect.
Dr Omar is Commissioner, Strategy, Innovation and Risk Management at KRA