The Effect of Debt Management Tools on Revenue Collection at Kenya Revenue Authority

Abstract

Taxation is the key source of revenue that the government of Kenya uses to provide public goods and services to its citizenry. Over the last decade the tax revenue has been growing steadily. Despite this growth the tax gap (as a result of underreporting, underpaying or non- paying of taxes due) has continued to grow. It is important for the revenue agency to ensure that taxes are paid on time and that debt is recovered in order to increase on revenue collection. Where the tax debts are not followed up and collected the taxpayers may not believe that the government will collect overdue taxes and this may cause them to be less motivated to pay it. This will in the long-run have a negatively effect on revenue base. The objective of the study was to establish the effect of debt management tools on revenue collection at Kenya Revenue Authority. To achieve this secondary data was used and it was analysed using descriptive analysis, correlation analysis and regression analysis. The findings show that there was a positive relationship between revenue collected and GDP and debt collected and a negative relationship between revenue collection and rate of inflation. It was further found that GDP was statistically significant in the regression model while debt collected and rate of inflation were not statistically significant. Though debt collection is not a strong determinant to revenue collection it was concluded that use of effective tools would reduce debt portfolio and that following up on unpaid taxes will foster equity and encourage compliance amongst taxpayers.