Strengthening Tax Compliance in Kenya: Strategies to Address Corruption and Narrow the Tax Gap in the 2020s

Tax compliance is crucial for a nation’s economic well-being. However, Kenya faces challenges in achieving optimal levels due to corruption and inefficiencies within the tax system. This study explores tax compliance in Kenya during the 2020s. Time series analysis examines trends in tax revenue collection (proxy for compliance) and its relationship with corruption perception, economic indicators (GDP growth, inflation), from 2019 to 2023. While actual tax revenue collection increased, targets set by Kenya Revenue Authority were not consistently met. Corruption perception remained low, but Granger Causality tests did not reveal a statistically significant short-term causal effect on tax revenue collection within the timeframe. Similarly, economic indicators lacked a strong predictive power. Regression analysis also showed no significant impacts of corruption perception, GDP growth, or inflation on tax revenue collection. These findings suggest the need for more complex models considering additional factors and a longer timeframe. The study concludes with recommendations to strengthen tax compliance, including combating corruption, improving tax administration efficiency, promoting taxpayer education, integrating the informal sector, and utilizing technology for tax collection.