Tax

Tax- The Necessary Evil

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By CPA Daniel Kiplangat Sigilai

Taxes Should Be Encouraged and Well Managed

Tax is a necessary evil, as is normally termed in an economy. It is the major source of revenue which sustains the day to day running of an economy, more so by the governing body in a country. It is a compulsory financial charge or a levy imposed on a taxpayer, individual or legal entity by a government in order to fund government spending. 

It is a necessary evil because while local society condemns its enforcement and collection, it needs services like infrastructure, security, health, and others to be provided by the government. By its very nature, the government has the authority through an act of parliament to source resources from all available and authorized avenues.

One of the major and authorized ones is taxation, which every governing body has the mandate to collect from those they govern to sustain its governorship. It is the most available and relevant source of revenue to the government.

Its collection forms the government’s main account, the consolidated funds, for which all government collections are accounted. The account is used to disburse funds to various ministries, departments and other agencies.

The government must provide services to its citizens through the various agencies where it needs revenue through taxation, which is the government’s imposition of compulsory levies on individuals or entities. It is levied in almost every country, primarily to raise revenues for government expenditure.

The government also uses taxes for fiscal policy to guide the economy.

Direct and Indirect taxes

Taxes are classified in various ways according to who pays them, who bears their ultimate burden, and how far the burden can be shifted.

Tax is a society membership fee; “people need to fairly share the cost of public services to support each other and build a better society”.

Role of tax

The tax system is the most important means of raising funds for public services.

Income redistribution function

Income tax and inheritance tax have progressivity, which puts a more significant burden on people with economic power, which plays a role in redistributing incomes and assets in conjunction with the expenditure of security benefits for society.

Tax also acts as an economic stabilizing factor; it holds down total demand through a tax revenue rise during an economic boom and stimulates total demand through a tax revenue decline during a slump.

Principles of tax

Tax has three principles that are meant to safeguard the taxpayer. There is the principle of fairness here: horizontal fairness, where people with the same economic capacity pay the same tax, and vertical fairness, where people with higher economic income pay more in society. There is also the principle of neutrality: taxes should not distort the economic activities of individuals or business corporations.

The tax system should also be simple so the taxpayer can easily understand. The tax governing authority should be dynamic and flexible to cope with the day-to-day demands of the economy. Our tax system shows that the authority is operating on rigid laws, which are long overdue and need continuous review. 

The tax authority has tried to widen its tax base but still fall below their targets. The reasons or contributing factors are the complex mode of collections yet they talk of simplicity. The current eTIMS introduced by the Kenya Revenue Authority is so complex that it might not enable it to maximize its collection through the same systems. Boarding eTIMS is marred with many requirements, such as possessing an Android phone or a registered laptop, which takes us back to how many taxpayers at the village level can afford these machines. We are all aware that some of the counties and villages have yet to be served with electricity and some of these gadgets are power driven.

Our taxes in Kenya have caused a lot of concern and outcry from all corners of the country, and we hope that the authorities give it the seriousness it deserves by addressing the complaints being raised by the taxpayers.

By its nature, tax has always caused ripples in society, though collection must cause too many complaints. The approach by those collecting is another concern, since it is a payment, avoidance of doubt by those paying, should be enhanced by being convinced that it is a requirement that they pay, but not to look like extortion by those responsible for collection. There is a tendency by those collecting the tax to look for favours from those responsible for payment, thereby causing conflicts.

It is also imperative that the government play its role of accountability and transparency in the use or application of the same revenue collected. Promises made by the government on development should be fulfilled so that the taxpayers are convinced that whatever they pay is put to proper use. The government should also carry out civic education on the need to pay tax and its use; participation is the current norm where the community gives their views on their requirements like roads, health facilities, water projects, and many others will convince the locals to pay taxes.

Management of the revenue collected goes a long way in assisting those who collect the tax; once the individual or corporation has a taste of the products of their taxes, they are encouraged to pay the taxes. Its administration requires a formalized operation for organizing and directing efforts, assigning activities to optimize the use of resources, providing information to justify the budget, and reviewing performance to make improvements.

Taxes represent an essential bond between citizens and the government, and paying taxes strengthens the perception that citizens have the right to hold the government accountable.

In conclusion, tax is necessary in an economy and should be encouraged and well-managed.

MBA, BCOMS. (JKUAT) Sigilai Audit and Assurance (Kapsabet) [email protected]

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