Impact of Tax Amnesty on Tax Revenues in Kenya

Abstract

Tax amnesties have been conducted by both developed and developing countries in their fiscal policy. There is no empirical evidence regarding the impact of tax amnesty on tax revenue despite repeated tax amnesties. The study sought to investigate the impact of tax amnesty on tax revenues in Kenya. The study mainly examined the role played by an amnesty on tax compliance. The study used time series methodology in estimating the impact of tax amnesty and other control variables on tax revenue in Kenya. The study carried out pre-estimation tests so as to validate the results. Among the pre-estimation tests carried out are autocorrelation, heteroscedasticity, multicollinearity and normality test. Stationarity of the variables was further investigated using Augmented Dickey Fuller test. The estimated results revealed overall significance of the explanatory variables in explaining tax revenue in Kenya with a coefficient of determination of 55.57 percent. The findings further revealed that the coefficients of tax amnesty and the first difference of foreign aid to be positive and individually significant at 1 and 5 percent level of significance respectively in influencing tax revenue in Kenya. On the other hand, the coefficient of inflation rate was found to be negative and individually significant at 10 percent level of significance in influencing tax revenue in Kenya. Based on the study findings, the study recommends adoption of tax amnesty by KRA as one of the ways of raising tax revenue in Kenya. The study further recommends efficient usage of the funds from international donors so as to realize economic growth and development thus leading to more increased tax revenue. Lastly, the study recommends independence of Central Bank of Kenya so as to efficiently address stability in price levels and hence encouraging investment that will lead to increased tax revenue.