Effect of Value Added Tax Reforms on Revenue Collection in Kenya Revenue Authority, Kenya

Abstract

Kenya introduced VAT to replace the Sales Tax which had been in operation since 1973. VAT has been the choice instrument for unexpected expenditure by increasing VAT rates. This study evaluates VAT revenue productivity for the period 2009 to 2013. The objective of this study was to evaluate the effects of VAT reforms on revenue and come up with a model for predicting VAT revenue financial years 2009 to 2013. The analysis showed that Vat reforms have a significant effect on VAT revenue. This implies that the growth in VAT revenue during the period of study was accounted for by implementation of the reforms. In the VAT revenue equation, the independent variable is the revenue collected and the dependent are reforms on vat which are online filling of returns,vat returns and integrated management system This study provides decision makers with an analytical framework which can be used to estimate the associated revenues for a VAT in Kenya and guidance to policymakers in countries planning to introduce a VAT. It identifies the tax reforms on VAT which when properly understood, documented, and captured in relevant tax revenue models, would make it possible to estimate accurately VAT revenues within a specified period of time. Although past studies advocated for raising rates within the existing system as the most obvious approach for increasing revenues, policy makers should note that this study finds that the decision has the effect of reducing VAT revenue. The study also contributes to the existing literature on the VAT structure in Kenya and stimulates further research in the area of VAT. Researchers should study the effects of VAT reforms on tax revenue.