Interest Rate and Performance of Value Added Tax in Kenya
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Date
2023-10
Authors
Nyambu, James Kitogho
Mwiathi, Peter Silas
Journal Title
Journal ISSN
Volume Title
Publisher
IAJEF
Abstract
In order to provide basic necessities for its
citizens, governments must rely on revenue
from many streams, including taxes such,
Personal income tax, value-added tax
corporate taxes and other levies. In Kenya, the
skewness of the tax structure lies strongly
favouring value added tax and income Taxes
as the two main tax revenue sources. Despite
numerous tax reforms undertaken by the
government, Kenya has had recurring national
budget deficits similar to majority of SubSaharan African countries. In the year 2005
the budget deficit was at 0.90% and the trend
has been upward to a deficit of 8.06% in the
year 2020. Several variables, including
interest rates, determine how much VAT is
collected. In Kenya, interest rates have been
unpredictable which forced the government to
cap the interest rates in September 2016 at
14% aiming at protecting borrowers from
excessive cost of credit. The capping was
however repealed in November 2019
allowing commercial bank to be in control of
their loan pricing based on the borrower’s risk
profile. The purpose of this study was to
determine how interest rates affect VAT's
performance in Kenya. The Value Added Tax
(VAT) receipts collected by the Kenya
Revenue Authority from 1990 to 2020 are the
primary topic of this descriptive research.
Institutional archives provided secondary
time series data, including those of the Central
Bank of Kenya, the Kenya National Bureau of
Statistics, and the Kenya Revenue Authority.
Secondary data was collected in the course of
the study by using data collection sheets.
Descriptive and regression analysis, the study
found that interest rate had negative effect on
value-added tax collected in Kenya. The study
thus recommends that the Government should
regulate the rise in the level of interest rate in
the country in order not provoke price
instability in the country.
Description
Article
Keywords
Interest rate, value added tax, performance
Citation
Nyambu, J. G., Mwiathi, P. S. (2023). Interest rate and performance of value added tax in Kenya. International Academic Journal of Economics and Finance, 3(10), 413-425.