Tax Reforms in Kenya: Reforming Value Added Tax
Permanent URI for this collection
Browse
Recent Submissions
Now showing 1 - 5 of 8
- PublicationDETECTING TRADE FRAUD RISK AND ASSESSING REVENUE LOSS – THE CASE OF KENYA(AERC, 2026) John Rand; Nathan Carter Remcho; Finn Tarp; Thomas Westergaard-Kabelmann; Clement OtindoThis paper examines cross-country distributional patterns in CIF-FOB trade unit value ratios to identify risks of import undervaluation and overvaluation. Building on these patterns, we develop a Trade Fraud Risk Index (TFRI) that ranks countries by their exposure to trade fraud and allows tracking of risk over time and across sectors. Using trade unit values and trade volumes, and incorporating WTO tariff rates, we assess both the magnitude of CIF-FOB value gaps and the associated potential customs revenue losses at the HS 4-digit level. To complement the quantitative analysis, we incorporate qualitative fieldwork conducted at the Port of Mombasa in 2024, including interviews with clearing agents, CFS personnel, truck drivers, and port workers. These field insights illuminate the mechanisms through which misreporting, undervaluation, misclassification, and bribery occur in practice. The qualitative evidence helps explain how fraud persists despite improvements in Kenya’s overall TFRI performance and provides context for sector-specific value gaps identified in the data. Applied to Kenya, the TFRI shows a marked improvement in trade fraud risk between 2005 and 2019, accompanied by a decline in estimated tariff revenue losses. The fieldwork findings, however, highlight persistent vulnerabilities within customs verification and inspection processes. Together, the TFRI and qualitative assessment offer actionable tools for customs administrations seeking to identify, understand, and mitigate trade fraud both internationally and domestically.
- PublicationPOLICY NOTES FOR FINANCE BILL 2026(AERC, 2026)The policy notes in this document are compiled based on guidance from the National Treasury & Economic Planning (NTEP) of the Government of Kenya and key stakeholders in the GOK-AERC-UCPH-DERG Collaborative Research Project, including members of the Project Steering Committee (PSC). The 2025 Policy notes document was comprehensive in addressing completed, ongoing, and planned studies under the Collaborative project. The present 2026 notes are focused on the four in-depth studies delivered as revised/2nd round drafts during March 2026 in accordance with the updated planning matrix dated 4 March 2026, and reflecting inputs from the November 2025 Stakeholder meeting and the work of the research teams since then.
- PublicationEconomic Complexity and Industrial Policy in Kenya(AERC, 2025) Malot, Kenneth; Mutuku, Cyrus; Otindo, Clement; Rand, John; Shibia, Adan; Sørensen, Bjørn BoKenya Vision 2030 aims to transform Kenya into a globally competitive economy, but its current export performance constitutes a significant impediment to realizing this objective. By systematically accounting for supply- and demand-side factors, this study identifies new products that can help to diversify and upgrade Kenya’s economy. In a supply-side analysis, we first use economic complexity methods to identify 70 complex target products - primarily in the Machinery & Electronics and Metals sectors - that Kenya can learn to export competitively given the current structure of its economy. In a demand-side analysis, we then use gravity models to predict a high export potential among target products in sectors like Vehicles & Transport Equipment, Machinery & Electronics, Chemicals, and Metals. We predict that many of Kenya's current trade partners could be key importers of the target products, but we also find a high demand in several underexploited markets such as Australia, Canada, Italy, Japan, Nigeria, South Africa, Spain, and Zambia.
- PublicationAssessing the Impact of Personal Income Tax Reform in Kenya with Administrative Data: Behavioral Responses and Distributional Implications(AERC, 2025) Kanina, Jane; Mugure, Josephine; Nato, Jacob; Urzainqui, David Garcés; Fisker, PeterThis paper leverages administrative tax data from Kenya to make several contributions to our understanding of personal income taxation in developing countries. First, we exploit recent tax reforms to credibly estimate the elasticity of income to changes in marginal tax rates from a taxpayer panel with state-of-the-art methods, a novelty in the context of Sub-Saharan Africa. We find a value of 0.3 for our sample of individuals in the upper half but not at the top of the income distribution, which conceals large disparities between inelastic public workers and a rather elastic private sector. Second, we combine administrative tax data with household survey data to address the shortcomings of each of these data sources in measuring income inequality and assess the success of income taxes and potential modifications to them in reducing post-tax income inequality. We also triangulate these data sources to quantify the compliance gap due to compliance at 23% of potential revenue, mainly attributable to self-employed workers. Finally, we rely on these tools to investigate the possibilities Kenyan policymakers have and the trade-offs they face when aiming to collect further revenue in an efficient and progressive manner.
- PublicationReforming Excise Taxation on Tobacco Products in Kenya(AERC, 2025) Oguso, Alex; Ochieng’, James; Remcho, Nathan; Eldrup, Magnus; Chemnyongo, HellenThis paper explores the excise taxation systems for tobacco products in Kenya, focusing on reform of the tobacco taxation system to achieve equity in taxation by changing the tax structure to be based on optimal tax rates and reviewing the considerations for filter and non-filter cigarettes. Utilizing a proprietary elasticity estimation nuanced by a literature review to generate joint Laffer curves, we identify potential adjustments that could increase government revenue without causing significant market disruptions. From the comprehensive review of the excise tax system on tobacco products, there are strong arguments in favor of equal treatment of cigarette brands and a uniform tax structure for filter and non-filter cigarettes. The empirical analysis suggests that there is a scope to raise taxes on tobacco, which could not only boost fiscal income but also improve public health outcomes by discouraging excessive consumption. However, it is worth considering that the policy considerations and the resulting revenue projections will change depending on the enforcement policies accompanying them. Therefore, it is important for the government to strengthen enforcement measures to curb illicit tobacco trade and protect the legal market.