Essay About Tax Policy In Kenya

2.3 Empirical Review

2.3.1 Tax Policy

Imaga (2003) states that tax policy is the choice by a government as to what taxes to levy, in what amounts, and on whom. It has both microeconomic and macroeconomic aspects. The macroeconomic aspects concern the overall quantity of taxes to collect, which can inversely affect the level of economic activity; this is one component of fiscal policy. The microeconomic aspects concern issues of fairness and allocative efficiency. Policymakers debate the nature of the tax structure they plan to implement and how they might affect individuals and businesses. The reason for such focus is economic efficiency as advisor to the Stuart King of England Richard Petty had noted that the government does not want to kill the goose that lays the golden egg. Paradigmatic efficient taxes are those that are either non-distortionary or lump sum. However, economists define distortion only according to the substitution effect, because anything that does not change relative prices is non-distortionary. One

This is the tax levied on the income of legal entities. Kenyan taxes are levied on corporations’ income derived or accrued in the country. Companies that operate branches outside the country are required to report all incomes earned by those branches in the country (Umoh, 2008). Corporation tax is imposed on the taxable income which is the accounting profit/loss adjusted for certain allowable and disallowable expenses. The deductibility of expenses is premised on the fact that they were wholly and exclusively incurred in the generation of taxable income. The corporation tax rate for resident companies in the country is 30%. In Kenya, residency for a legal entity may arise through the incorporation, management and control of an entity and the declaration by the Cabinet secretary in-charge of the Treasury that the person is a resident (Owoh,