REG NO: D33/33599/2015

COURSE: PRINCIPLE OF TAXATION

CODE: DAC 202

ASSIGNMENT: ONE

INTRODUCTION

Tax is any linkage from circular flow of income into public sector expecting loan transactions
and any other direct payment for publicly produced goods and services up to cost of production
Moreover tax is compulsory contribution to the government paid by individuals and the
corporate, that does not bear any relationship with the benefit. It’s a major component of
government revenue. They are various reasons that lead to the need of tax: namely,

 Raising revenue used to complete development projects, maintain peace and security in
the nation and to increase the national welfare.
 Maintain economic stability in the country like during inflation the government imposes
high taxes to curb the unnecessary expenditure from the individuals.
 Act as a protection policy like taxing heavily imported commodities that come to
compete with the local goods.
 Encouraging good morality and social welfare through heavily taxing commodities such
as wine, cigarettes ,beer , spirit
 Fair distribution of income where the rich are heavy taxed and the amounts are used to
increase the welfare of the poor.
 Also due to the nature goods and services in the society.
They are various types of goods and services that are consumed in the country. The
various types of goods are treated defiantly when it comes to tax.
In our country they are various activities that carried out. Some of the actives are done by
the private sector; some are done by the government itself and others they collaborate.
Some of the act ivies the government is tasked to do include:
 Education
 Security
 Construction of roads ,
railways , airports
 Health support like major
pandemics like
HIV/AIDS, cancer ,
diabetes
  Provision of necessities
like food, water

The private sector is also not left behind. It engages in activies such as:

 Agriculture
 Manufacturing
 Trade
 Tourism
 Communication
 Transport

Some of the goods and services that being offered by the government can also are provided by
the private sector. Due to their nature that they have jointly consumed such as roads, army,
education the government has taken the responsibility of providing the goods and the service.
The goods and services are expensive and require a lot of resources. For example it took the
government more than 17 billion the government approximate to finance the standard one
pupils tablet project. The laptop project had an impact on the taxes.

EDUCATION

Moreover a very important project for the government in the education sector is paying the
teachers. It also has its own effect on tax .For example on 26thWednesday august 2015 the
government increased the teachers’ salaries that lead to a need of 17 billion shillings which had
not been allocated in the budget for year. The government had to tax more on commodities in
order to ensure that they have acquired the extra 17 billion shillings. The finance committee in
parliament planned to increase raise the vat percentage (16%) this lead to an increase in cost of
goods and services and common citizens had to go deep into their pockets. In the budget
2016/2017 the government has allocated 13.4 billion shillings for school laptop project of which
11,500 students have already gotten.

Also in the education sector, cost of providing free secondary education. It was a program that
was launched in the year 2005.Each student was allocated 10,625 per year with 1.7 students
benefiting from the program back in 2011.In 2016/2017 budget the government set aside 32.4
billion shillings to finance the free secondary education.
On 6th January the government of Kenya started the free education program. The government
pleaded to provide funds for purchase of all teaching materials, teacher’s salaries and capacity
building and reports of inadequate funding among institutions. In the budget 2016/2017 the
government set aside 14.7 billion shillings.
The government does not only cater for the primary and secondary students but also other sectors
in the education system. The government in the 2016/2017 it allocates the following billions of
shillings to:

 4.5 billion for recruitment and promotion of teachers

 2.8 billion of teachers house allowance
 2.5 billion shillings for technical training institute
 2.6 billion for children feeding programme
 0.4 billion for sanitary towels
 9.1 billion for higher education loans board
 57.8 billion for university education
 3.2 billion shillings for KNEC examination fee waiver
HEALTH
The government of Kenya also caters for a very important sector that is the health sector.
Since 1963 (Kenyan’s independence) the health system has been tax funded. Although in
today’s world they are different health insurances like NHIF and reversal others that help
to fund health sector. In the year 2003 the government of Kenya revenue increased from
424 billion to 620 billion .this lead to turn over tax for small business for small business
aimed to bring the informal sector business such as agricultural enterprise into the tax
envelope. The Kenya Revenue Authority also implemented ways to improve compliance
including outreach campaign to sensitive and educate tax payers and providing assistance
in filling tax returns.
In the 2016/2017 Kenya’s budget the government gave the health sector a lot of weight.
The government allocated 4.3 billion shillings for free maternal healthcare since year
2013 the mortality decreased from 6000 to 4300 .Moreover the government in order to
improve and increase the level of special services the government allocated 4.5 billion to
lease medical equipment. Other allocations include:

5.8 billion For Moi teaching and referral

hospital

8.8 billion To Kenyatta National

Hospital

1.7 billion Kenya medical reach institute

3.0 billion For doctors/clinical

officers/nurses internship

1.8 billion For aids national control

0.9 Billion for free primary healthcare

 0.7 Billion for uploading of the portable
clinics

0.9 Billion for the health insurance

subsidiary for the elderly

1.3 billion For university health

coverage

3.5 billion For the Kenya medical

training institutions

ELECTRICITY

Electricity is very important item for the Kenyans. Mostly used in

household, institutions and industries. The Kenyan government has really
invested in that sector. In the Kenya’s budget 2016/2017 the government
allocated 120.2 billion shillings of which 38.5 billion was from the
government of Kenya. The money will be used in installation of
transformers in constancies, geothermal electrification, power
transmission, rural electrification programme, last mile connectivity and
national street lighting.
On 28 they may 2015 the government of Kenya released 34 billion from
the Kenya electrification fund that will be used to connect 2.3 million new
customers to electricity. A further 58.2 billion shillings will be funded for
install electriTcy and also take transformers in areas that are not connected
yet by the year 2018
AGRICULTRE
Kenya is a very diverse country. 75% of Kenyans depend on agriculture
for their living. It contributes 25% directly to the Kenya’s GDP. in the
2016/2017 Kenya’s national budget it allocated 20.8 billion shillings for
irrigation project in kalalu-galana irrigation project.4.9 billion shillings to
subside the cost of fertilizer and seeds.1.6 billion shillings to maintain the
food reserves. The fishery sector was not left behind it was allocated 8.4
billion shilling for offshore patrol vessel. The coffee farmers were not left
behind they were allocated 2.4 billion for the coffee fee waiver.
The government of Kenya really invests in agriculture. In the year 2003-
2004 the government spent a total of 360.3 billion shillings .in the year
2004-2005 government spent 378.8 billion shillings. In the year 2005-
2006 the government spent a total cost of 432.6 billion shillings on
agriculture. In the year 2006-2007 the government spent 588.8 billion
 shillings on the agricultural sector alone.2007-2008 the government of
Kenya spent 358.8 billion shillings on the agricultural sector.
The government also allocates money depending on which zone .for
instance it allocated 85853 million shillings to areas of high
rainfall,115,406 to areas of semi arid climate.46,386 million shillings to
areas of arid climatic zones.247,645 million shillings being the total cost
of government allocation depending on the climatic zones.
WATER
Each and every citizen has a right to water. The national water strategy
makes sure that all citizens have access to water and poor citizens can pay
at low tarrif.due to this during the year 2004-2005 6.9 billion shillings was
injected in the ministry of water and irrigation. In the year 2008-2009 the
government found it worth to increase its allocation to the ministry and
allocated 18.6 billion shillings.
WAYS IN WHICH THE PRIVATE SECTOR HAS FAILED

The private sector is all those that provide goods and services outside the public sector.
It’s not directly controlled by the government. They include non-profit organizations
(voluntary sector) and profit organizations such as faith based organization and non –
governmental organization. It may provide goods and services to the people who agree to
pay them. Examples of the private sector in Kenya may include:
 Banks( centum investment, equity bank,Barclays,jubilee insurance)
 Telecommunications( safaricom, aitel, orange)
 Retail( tuskys, uchumi, nakumatt, naivas)
 Media( nation media group, royal media services)
 Oil and gas(total, kenkobil)
The private sector faces a lot challenges leading to its failure for instance having a
disruptive political cycle. During elections they are usually a lot of disruptions that hinder
and also bring down all that has been invested by the private sector during the political
stability times. Due o this situations it leads to many companies in the private sector to
underperform and also lack motivation to grow its sector.
Macroeconomic volatility has cited to be a great challenge to the private sector. The cost
of capital is high and variable exchange and inflation rate poses a lot of challenge to the
private sector. It affects the profits of the business because it leads to financial constrains
and at times losses. In place of exchange rate it mostly affects the companies that do
international business where the fluctuation of the value of the shillings especially when
the shilling begins to weaken it leads to the company experiencing severe loses.
Infrasture in Kenya is below par, they are several roads that have lots of potholes that
require a lot of repairs, some of the areas to have their roads being impassable especially
during the rainy season. Moreover also they are slow clearance if goods at the port this
leads to a lot of wastage of time and if they goods are highly needed or perishable they
may end up not reaching the intended customer at the right time.
Energy cost is too high and becoming a great burden to the various private sector. Cost of
some petroleum products required to run the machines are too expensive yet very vital for
the companies. Often disruption of power supply is also a great challenge to the private
sector. Especially where the company requires power to provide goods and services to its
customers. Like hospitals, banks, industries and many others. Some that also need
electricity to preserve them perishable goods go a huge loss as result of lack of power
since the goods go bad.
There is great dislinkage between the formal sector and informal sector .the informal
sector is poor and misunderstood thus a lot of disagreement with the government policies.
The anecdotal evidence suggests that that the main barriers to growth and formalization
include low skills and lack of access to technology, high effective tax, unfriendly
environment and inadequate financial services.
The devolved government is also an issue. It inhibits the ability to foster a business
friendly environment that that hinders proper leadership. The growth of the private sector
depends on the ability the government will put on the opportunities. Some of the
opportunities lead to attractive domestic market, manufacturing and financial sectors and
rapidly urbanizing the Kenyan population
Lack of comprehensive and comprehensive data on tourism and internet communication
technology. There is a perception by business that government is too slow in issuing the
reforms and administration is characterized by fragmentation and duplication of effort
compounded by unnecessary bureaucracies and inefficient tax system.
CONCLUSION
We can conclude that if we’re not for tax the Kenyans would have suffered. The taxes
that they are imposed are used to provide very crital goods and services such as
healthcare, education, security and many others. The private sector does not have the full
capacity to provide such goods and services like security it may not have the financial
effort to facilate the payment of their wages, some of the weapons according to the
Kenyan law cannot be handled by the private sector. Therefore the movement should
impose taxes where necessary and also come up with strategies of collecting tax in
efficient manner.
REFFERENCES
1. www.usaid.com
2. 2016 budget analysis
3. www.kplc.co.ke
4. www.treasury.go.ke
5. www.delloite. co.ke
6. business daily June 28 2015
7. www.ungei. Org
8. Www. afd.com