| dc.description.abstract | The study’s objective was to determine the effect of value added tax on economic growth
in Kenya. The research design adopted in this study was causal study. The target
population for this study consisted of the quarterly reports on the state of the Kenyan
economy in relation to productivity as measured by Gross Domestic Product (GDP),
consumer prices as measured by consumer price indexes (CPI), and employment as
measured by the unemployment rate, from the inception of VAT as administered by
Kenya Revenue Authority (KRA) from 1990 to 2014. This study used secondary data
which consisted of VAT rates, gross domestic product growth rates, consumer price
indices and unemployment rates which were obtained from Kenya Revenue Authority
(KRA), International Monetary Fund (IMF), Kenya National Bureau of Statistics (KNBS)
and The World Bank data bases respectively, for the study’s period as this period is
representative and long enough to capture the responsiveness of changing VAT rates.
With regard to the effect of VAT rates on economic growth as measured by GDP, the
findings indicated that a percent change in the incident rate of GDP is an increase of 7%
for every unit decrease in VAT. It can therefore be concluded that there exists a
significant negative relationship between VAT rates and GDP; hence the researcher
recommended that KRA should strive to reduce and/or maintain a low VAT rate in order
to increase overall GDP. As regards the effect of VAT rates on economic growth as
measured by CPI, the findings indicated that a percent change in the incident rate of CPI
is an increase of 9.2% for every unit increase in VAT. It can therefore be concluded that
there exists an insignificant positive relationship between VAT rates and CPI; hence the
researcher recommended that KRA should strive to reduce and/or maintain a low VAT
rate in order to maintain low levels of inflation (CPI) within the economy. With regard to
the effect of VAT rates on economic growth as measured by unemployment rate, the
findings indicated that a percent change in the incident rate of unemployment rate is an
increase of 1.2% for every unit increase in VAT. It can therefore be concluded that there
exists a significant positive relationship between VAT rates and unemployment rate;
hence the researcher recommended that KRA should strive to reduce and/or maintain a
low VAT rate in order to maintain low unemployment rates within the economy. | en_US |
