The Effect of Property Taxation on Economic Growth in Kenya

Abstract

Public expenditure in all nations across the world is funded by money collected from taxes as the major source with other supplementary sources like government debt among others. All the land contained in a given geographical location such as the county could be developed by the County government itself through purchasing the land at the price quoted by the seller if no other buyer can purchase the property at the price offered by the owner. The planning powers of the county governments allow them to unlock their land based on small scale farms which fall under commercial farms and subjected to commercial property rates. The aim of this study was to determine the effect of property taxation on Economic growth in Kenya. The study was informed by the Classical Growth Theory and the Traditional Tax Handle Theory. A descriptive research design was used by the researcher. Secondary data was collected by the researcher from relevant publications by KNBS and KRA. The collected data was analyzed using descriptive statistics. The findings of correlation analysis indicated that property taxes had positive and significant relationship with economic growth (r=0.691, p=0.000<0.05). There was a further positive relationship between corporate taxes and economic growth (r=0.011, p=0.946>0.05). The study established an inverse relationship between individual taxes and economic growth (r=-0.065, p=0.691>0.05). Inflation was directly related with economic growth (r=0.166, p=0.306>0.05). The study established an inverse relationship between interest rate and economic growth (r=-0.588, p=0.000<0.05). From regression analysis, at 5% significance, property taxes (p=0.000<0.05), inflation (p=0.003<0.05) and interest rates (p=0.000) significantly contributed towards economic growth. The study concluded that an increase in property taxes could either decrease or increase economic growth of the country. An increase in inflation increase economic growth. A decrease in interest rates increases economic growth of the country. The study recommends that Kenya Revenue Authority should be careful when setting taxation rates for example on properties. The Central Bank of Kenya CBK ought to strengthen monetary policies that keep the interest rates and inflation at sustained levels for greater economic growth of the country. There is need for awareness programs and campaigns to remind citizens on the need to pay taxes for sustainable economic growth.