Impact of excise taxes on revenue generation in Kenya: (the case of Mineral water)

Abstract

Taxation refers to compulsory levies on individuals and organizations made by governments to raise revenue to finance expenditures on public goods and services. One form of these taxes is the excise tax. However, there has been the problem of tax evasion in Kenya thus hindering the efforts of the government to collect enough revenue to finance its expenditures.

It is on this basis that the study sought to establish the impact of excise taxes on revenue generation in Kenya, with particular interest in mineral water. The study used secondary time series data for the period 1996-2006. This data was collected from Kenya Revenue Authority and Government of Kenya various Statistical Abstracts and Economic Surveys. The study employed Ordinary Least Squares for estimation purposes.

The results showed that mineral water is price inelastic with an own price elasticity of - 0.265. This means that excise tax can be levied at high rates on this product with less than proportionate drop in consumption and demand. Also the elasticity was found to be 0.98. Hence, the conclusion by the study that excise tax system on mineral water has been efficient over the period under consideration. The study also concluded by recommending that major improvement in tax administration in order to avoid tax evasion is paramount to increase tax revenue.