MEASURES OF TAX BASE BROADENING IN KENYA: A CASE STUDY OF TAXATION WITHIN THE INFORMAL AND ILLEGAL SECTOR IN KENYA

Abstract

Taxation is an important source of revenue for any country; it is basically the process where the government collects funds from its citizens in exchange for services such as education, roads and security among other amenities. On 15 April 2016, the Court of Appeal of Kenya rendered a landmark ruling. In the seminal case of Republic v Kenya Revenue Authority ex parte Yaya Towers Limited, the Kenya Revenue Authority sought to have an employee of the applicant remit his income tax. Despite finding the employee’s employment contract to be illegal, the court proceeded to hold that income accrued from the said contract was liable to taxation. For the first time in Kenya, income derived from illegal activity was held to be taxable pursuant to the provisions of the Income Tax Act of Kenya. As in many other countries, the debate as to taxability of illegal income has found its way into Kenya’s judiciary, this decision opened a plethora of issues, which the court may not have anticipated. This paper delves into the definition of income provided in the Act, the court’s interpretation of the same and whether income generated from illegal activity falls within the law’s purview. The question as to whether or not a criminal should be allowed to deduct expenses incurred in the process of procuring the said illegal business is also dealt with. The link between the criminal justice system especially, the right not to self-incriminate and the taxability of income generated from crime will be examined and finally, this paper analyses the use of tax law to reinforce criminal law. Since the issues raised above are not unique to Kenya, it is important to tackle them with reference to other jurisdictions that have experienced similar problems. The paper will be based on factual data taken from various sources as well as scholarly works and articles. Throughout the study the main objective is to look into other ways the government can raise revenue besides taxation and give suggestion or recommendations into the nature of laws of policies that are required.