African Tax and Customs Review

Coordinated Border Management and Trade Facilitation at Namanga Border Post, Kenya

Catherine Ondari Moraa — 2023-11-20

Trade facilitation at the Namanga border post is currently facing a number of challenges that result into delays of clearance of goods across the Kenya-Tanzania border. The situation often encourages increased smuggling of goods as traders try to use shortcuts to avoid government agencies’ bureaucracies that always cause losses to several businesses due to delayed movement of commodities across the border. All these challenges are associated with disjointed coordination of trading by different agencies involved. The purpose of this study was to establish the effect of coordinated border management on trade facilitation in Kenya, focusing on Namanga one-stop border point. Specific objectives of the study included: to establish the effect of cooperation among border agencies, coordination between border agencies, border collaboration challenges between border agencies, coexistence among border agencies, and the effect of communication among border agencies on trade facilitation at the Namanga border point. New Trade Theory and Export Base Theory were used in the study. The study adopted causal research design and a target population of 140 staff of border control agencies at Namanga Border Point. Census was used to include all of them in the study where primary data was collected using a structured questionnaire and analyzed using descriptive (frequencies & percentages) and inferential (multiple linear regression) data analysis methods. The study’s key findings indicated that a unit increase in cooperation among border agencies would lead to a 0.153 increase in Trade facilitation at Namanga Border Post (β1=0.153, p=0.008<0.05); a unit increase in for Coordination of border agencies would lead to a 0.246 increase in Trade facilitation at Namanga Border Post (β2=0.246, p=0.014<0.05); a unit increase in Collaboration between border agencies would lead to a 0.123 increase in Trade facilitation at Namanga Border Post (β3=0.123, p=0.03<0.05); a unit increase in Coexistence among border agencies would lead to a 0.232 increase in Trade facilitation at Namanga Border Post (β4=0.232, p=0.001<0.05); a unit increase in cooperation among border agencies would lead to a 0.331 increase in Trade facilitation at Namanga Border Post β5=0.331, p=0.000<0.05). The study concluded that coordinated border management has a significant effect on trade facilitation at Namanga border post. The study recommended that there is need for the government and other key stakeholders to adopt international standards and tools of trade, such as SAFE Framework of Standards and performance of Time Release Study (TRS), that will help the identify bottlenecks and the border and address them efficiently. The study suggested that a comparative study should be carried out on the effect of coordinated border management on trade facilitation in at least two border points. A study should also beconducted on how the government is addressing challenges of coordinated border management to improve trade facilitation.

Effect of Tax Incentives on Financial Performance among Manufacturing Firms in Kenya

Faith Kimeu Mumbua — 2023-11-20

Tax incentive is a strategy employed by governments world over to attract investments in varied sectors of their economies. The main objective of this study was to examine the effect of tax incentives on financial performance of manufacturing firms in Kenya, taking manufacturing firms in Nairobi industrial area as a case study for 10 years. The study was guided by the following specific objectives: to find out how capital allowance affect financial performance of manufacturing companies in Kenya, to establish the effect of allowable deductions on financial performance of manufacturing companies in Kenya and to investigate effects of investment deductions on financial performance of manufacturing companies in Kenya. The study adopted deterrent theory, ability to pay theory, and agency theory. The study employed a descriptive research design, using stratified sampling methods. The study’s target population was manufacturing companies in Kenya specifically in the Nairobi Industrial Area across all the categories as listed by the Kenya Association of Manufacturers directory as at 2022. The study collected secondary quantitative data which was analysed using descriptive statistics (means and standard deviations) and inferential statistics (correlation analysis) to determine the relationships between the independent variables and the dependent variable. Tables and figures were used to present the analysis output. The findings indicated that tax incentives had a significant positive effect on financial performance, as they reduced the cost of capital for manufacturing firms, promoted innovation and competition, and led to increased productivity and efficiency. Based on these findings, the study recommended that the Kenyan government should continue to provide tax incentives to manufacturing firms and tailor them to the specific needs of each firm, while also encouraging innovation and competition in the sector through support for research and development, technology transfer, and training programs. Manufacturing firms are also encouraged to take advantage of the tax incentives to invest in capital-intensive projects and acquire capital assets. However, there is a need to review the current tax laws to make the tax incentives more flexible and attractive to potential investors, and to consider increasing the amount of tax incentives to further reduce the cost of capital for manufacturing companies.

Impact of Indirect Tax Policy Reforms on Revenue Performance in Kenya

Faith Gatwiri Kiara — 2023-11-20

The largest source of government revenue in Kenya is taxation. Domestic revenue mobilization is a key priority for providing governments with funds to deliver public services, for sustainable development agendas and investing in development. Tax and non-tax revenue are critical components of domestic resource mobilization. Over the years, there have been major changes in the tax systems of various countries including Kenya. The motivation for these reforms has varied from country to country. For many developing countries, the impending fiscal crisis has provided the need for immediate tax reforms to enhance revenues. Kenya has undertaken massive tax reforms since the late 1980s under the Tax Modernization Programme. The significance of Indirect taxes over direct taxes as a means of raising government revenue has gained momentum and is viewed as more favorable for investment and growth. Little is known about the performance of the reforms in terms of revenue-raising capacity for each tax category. This study aims to examine the impact of tax reforms with respect to pre- and post-reform periods and the factors underlying the observed trends of indirect taxes as one of the revenue sources that is not fully utilized. The objectives of the study were to establish the effects of the introduction of Withholding VAT the introduction of EGMS and switching the tax system from hybrid to a uniform specific or ad valorem Excise tax regime on revenue collection in Kenya. Annual secondary data spanning the period 2010-2019 was used in the analysis. The source of the data was mainly the Kenya Revenue Authority and the Kenya National Bureau of Statistics. Impact evaluation techniques (regression discontinuity and difference-in-difference) also known as quasi-panel analysis techniques were used in the analysis. Stata software was employed in the analysis. From the difference-in-difference model, the analysis reveals that the introduction of EGMS led to an increase in excise revenue by 81.2%. This was significant at a 1% level of significance. VAT increased by 13.4 percent following the introduction of VAT withholding agents. This was equally significant at a 5a % level of significance. These findings are expected to shape policy direction that is aimed at enhancing domestic revenue mobilization. Based on the findings, the study recommends that the Commissioner of Domestic Taxes should map all Medium Taxpayers (MTO) based on risk assessment and enroll additional taxpayers who can serve as potential VAT withholding agents. Further, the study recommends the broadening of the scope of goods covered under the EGMS system, and amendment of the Excise Duty Act to revert to the hybrid system (Higher specific or ad valorem rates).

Moderating the Effect of Taxpayer Engagement on the Relationship between Capital Gains Tax and Tax Compliance among Real Estate Businesses in Nairobi, Kenya

Faith Opisa Netia — 2023-11-20

Even though there has been a progression towards the realization of more taxes from CGT, the same is not commensurate with the size of the real estate market in Kenya. Consequently, there have been proposals to increase the CGT rate from 5% to 12.5% but the proposals have been met with resistance with some preferring stakeholders’ engagement to streamline the issues on compliance rather than increasing the rate. For this reason, the study sought to investigate the moderating effect of taxpayer engagement on the relationship between Capital Gains Tax and Tax compliance specifically among real estate property businesses in Nairobi, Kenya. The study adopted an explanatory research design with the targeted population being 467 real estate businesses from where a sample size of 216 was drawn. The specific objectives of the study were to investigate the effect of lock-in-effect on tax compliance among real estate businesses in Nairobi, the effect of capitalization effect on tax compliance among real estate businesses in Nairobi, and to determine the effect of taxpayers’ engagement as a moderating variable in the lock-in effect and capitalization effect on tax compliance among real estate businesses in Nairobi, Kenya. Data collection was done through a 5-point Likert scale questionnaire. Inferential statistics through the use of regression and correlation analysis was used to analyze variables. Regression analysis established a negative significant linear relationship between the lock-in effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of -0.119. Additionally, there was a negative significant linear relationship between the capitalization effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of -0.293 and lastly a positive but insignificant linear relationship between taxpayers’ engagement and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of 0.189. Also, there was a positive significant linear relationship between taxpayers’ engagement moderating on lock-in-effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of 0.521 and a negative insignificant linear relationship between taxpayers’ engagement moderating on capitalization effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of -0.258. The study concluded that the lock-in effect and capitalization effect had a negative and significant effect while tax engagement had a positive and insignificant effect on tax compliance among real estate businesses in Nairobi, Kenya. However, taxpayers’ engagement as the moderating variable was found to play a significant role in tax compliance among real estate businesses in Nairobi, Kenya. The study recommended that KRA should create more awareness among taxpayers on the impact of lock-in effects and capitalization effects on the economy and why it is a vital aspect for consideration.

The Nexus between the changes in Oil output in the United Arab Emirates and the Volatility of Petrol Prices in Kenya

Samson Kiptoo Rotich — 2023-11-20

The volatility of petroleum prices in Kenya compels an analysis into the fundamental causes of the recurrent fluctuations. Movements in oil production from important importing sources play a role in determining petroleum prices in importing countries. However, no clear model exists that explains how these changes in oil output affect the price of gasoline in Kenya. Additionally, there is no framework that explains how long these shocks last in the Kenyan market. The present situation has opened the door for a research project designed to comprehend the effects of changes in oil output from the United Arab Emirates on gasoline costs in Kenya. The two main goals of the study are to first determine how monthly oil output changes in the UAE affect Kenyan gasoline prices between 2017 and 2020, and then to determine how long the effects of oil production shocks from the UAE last in the Kenyan gasoline market. In order to determine whether monthly variations in oil output from the United Arab Emirates have an impact on Kenya's gasoline prices and whether oil production shocks from the United Arab Emirates have lasting effects on the Kenyan gasoline market, the research is set up as a hypothesis-driven investigation. The study made use of concepts from the Real Business Cycle theory and the conventional notion of market self-adjustments. The analysis relied on secondary data which were collected from various sources including OPEC, EIA, Central Bank of Kenya and World Bank’s websites. The data were processed using the R programming language. After analysis, a model was constructed, enabling the derivation of conclusions and subsequent recommendations.

Non-Tariff Barriers on Intra-Common Market for Eastern and Southern African Trade

Charles Ochieng Sewe — 2023-11-22

This study, aimed to shed light on the magnitude of the effects of non-tariff barriers on Intra-Common Markets for Eastern and Southern African trade, the impact of gross domestic product, population, distance, tariff rate and common language on intra Common Market for Eastern and Southern Africa trade, and determinants of non-tariff barriers in the Common Market for Eastern and Southern Africa region. The study used the gravity model and simple ordinary least squares regression model as its overarching analytical framework. Bilateral imports between trading partners were used as the dependent variable, while the distance between trading partners, common language, population, gross domestic product, tariff rates, and non-tariff barriers were used as independent variables to achieve the project's objectives one and two. The third goal of the study was to examine the unemployment rate, gross domestic product, tariff rates, political institutions, and Common Market for Eastern and Southern Africa members as they relate to achieving objective three. The study confirmed that the imposition of non-tariff barriers has a negative effect on bilateral trade. An increase of one percent in non-tariff barriers is associated with a 34.3 percent decrease in the Intra-Common Market for Eastern and Southern Africa bilateral imports, an increase of one percent in gross domestic product is associated with a 30.8 percent increase on the intra-Common Market for Eastern and Southern Africa bilateral imports, and one percent increase in tariff rate is associated with 38.8 percent decrease in bilateral imports. Therefore the study recommends that the Common Market for Eastern and Southern Africa should encourage trade facilitation measures, promote economic growth, encourage bilateral trade negotiations, strengthen political institutions, promote good governance and accountability, and implement public sector reforms among other recommendations.