Operational Risk Management Practices and Performance of Kenya Revenue Authority in Collection of Tax Revenue in Kenya
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Date
2023-11
Authors
Kariuki, Stephen Maina
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Every government has an institution that is entrusted the role of collecting tax on behalf of the
government. In Kenya the entity that has bestowed the role of collecting and mobilizing taxes is
Kenya Revenue Authority which was established by an act of parliament in 1995. The entity has
a board of directors, the day to day operations of KRA is done by the Commissioner General.
KRA has been falling short of meeting its tax revenue targets and thus the need to reevaluate risk
management process with an aim of mitigating risk affecting its performance. Tax revenue
collection constitutes an important part of national economic growth it is one of the critical
ingredients of a healthy Gross Domestic Product. Moreover, the collection of tax cannot be
effective without a proper functioning risk management system which entails risk identification,
risk analysis, risk control and risk evaluation. These practices enhance the capacity of an
organization to do better in collection of the much needed resources for prosperity and growth.
This study evaluates the important relationship between risk management practices and
performance of Kenya Revenue Authority in terms of tax revenue collection. It examines the
aforesaid risk management practices of risk in relation to tax revenue collection performance of
KRA, with the ultimate intention of benefiting policy makers and academicians in the same
quest. The main goal of this research was to establish the effect of risk management practices on
the performance of Kenya Revenue Authority in collection of national revenue in Kenya. The
study's time frame was from 2018 to 2022. The study was anchored on four theories namely;
Neo- institutional theory, stakeholder theory, contingency theory of management and the agency
theory. The study adopted a descriptive research method, from a population of 3906 KRA
employees a total of 294 divisional representatives were sampled using a mix of stratified,
purposive and judgmental sampling. To the representatives of KRA there was a survey
questionnaire structured according to the objectives of the study. The questionnaire was
presented on a drop- and-pick method in order to ensure high response rate. In two steps, the data
was coded and examined. In the first stage there was confirmatory factor analysis, the second
stage was structural regression equation model. The imminent primary data was coded and
analyzed statistically using R in lavaan programing language. Under the assumption of no
linearity the data was analyzed using the structural equation model methodology to specifically
identify the confirmatory factor structure followed by a measurement model in the form of
multiple regression. The model was diagnosed using normality, model identification status
testing, multicollinearity and model fit diagnostics of fit test, this was done by standardizing all
the covariances. As part of ethical consideration the researcher created rapport with the
respondents by assuring them of utmost confidentiality and presenting them with an
authorization letter from NACOSTI. From the findings, risk analysis and risk identification had
significant positive effects while risk control and evaluation had positive but insignificant effects
on KRA performance in national revenue collection. Policy recommendations from this study are
that KRA can improve revenue collection performance by exploiting the potential in
harmonizing the application of risk analysis and risk identification practices.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfilment to the Requirements for the Award of a Degree in Master of Business Adminstration (Finance Option) of Kenyatta University, November 2023.
Keywords
Operational Risk Management Practices and Performance, Kenya Revenue Authority, Collection of Tax Revenue, Kenya