Decomposition of the Tax-to-Income Elasticity of Major Taxes in Kenya

Abstract

According to Kotut S and Menjo I the Major  tax components and the tax systems exhibit non elasticity therefore raising the question of the decomposition of tax to income elasticity of the major taxes in the country, These study therefore  purposed  to investigate the decomposition of tax to income elasticity in Kenya using time series data from KNBS, the Central Bank and the KRA, the empirical results show that the decomposition of the tax-to-income elasticity into its constituent parts, i.e. tax-to-base and base-to-income  showed that the inelasticity of the Kenya tax system is due to the low tax-to-base elasticity of individual taxes since the base-to-income elasticities for all taxes were found to be  approximately above unity. The tax-to-income elasticity can be improved by raising the responsiveness of the individual taxes to the bases, this study therefore recommend that appropriate policy measure to be put in place so as to cattail the discretionary measures on tax and macroeconomic environments. Key words: - Tax, Income Elasticity, Tax Decomposition