Kenya’s GDP has been growing at more than 5% for most of the past decade.1 This growth has however not been translating into reduced poverty with an estimated 17 million Kenyans still living below the international poverty line of USD $ 1.90 a day.2 In addition to this, the inequality gap in Kenya remains monumental with 0.1% of the population owning more wealth than the rest of the 99.9%.3 In order to accelerate the poverty reduction, there is need to focus on policies that ensure inclusive economic growth.
A properly functioning tax system is essential because it not only provides the means by which governments can fund the services expected of them4 but is also an important tool for wealth redistribution and therefore poverty and inequality reduction.5 Tax policy determines not only how much taxes a country can raise, but also who bears the burden of tax. One of the key tenets of tax policy as enshrined in Article 201 of the Constitution of Kenya, 2010 is that the burden of tax should be fairly shared. This can be achieved through progressive taxation, which requires that the rich bear a proportionately higher tax burden than the poor. Progressive taxation in developing countries such as Kenya has however been difficult to implement due to the concentration of income on the very top percentiles.6 The wealthy taxpayers possess power and influence that allows them to block efforts to impose tax on their incomes. Further, wealthy individuals use their economic resources and political connections to push for tax incentives that benefit them. In pushing for tax incentives, the wealthy argue that tax incentives are necessary to create an attractive business environment.
This is despite lack of evidence on the effectiveness of tax incentives to attract investments in isolation. Further, social benefits from the investments are rarely commensurate to the tax revenues lost.7 Despite the low correlation between tax incentives and increased investments, as well as the negative impact of granting tax incentives on public revenue, Kenya like many developing countries continues to grant tax incentives. 8 This is mostly due to capture of the tax policy and legislation process by rich and powerful stakeholders coupled with politician’s willingness to extend favours to special interest groups. 9 The impact of elite capture on formulation of tax laws is a shift of the tax burden from the rich to the poor which exacerbate poverty and inequality. This paper seeks to analyse the patterns and trends of tax incentives and exemptions in Kenya granted in the period 2009 to 2019. This is aimed at identifying the main beneficiaries of the tax incentives and key stakeholders who influence formulation of tax laws for the of benefit select individuals or groups. The paper will also identify instances of structural disenfranchisement of the incentives on the Kenyan population with a bias on the poor, women and youth.