Abstract:
Tax revenue is a major source of government revenue all over the world as it aids the
government in the maintenance of political, social and economic objectives. However,
based on the recent tax collections, it is evidenced that the tax revenues in Kenya are
underperforming primarily because of tax administration. Due to this conceptual gap,
the study examined the moderating effect of ICT usage and trade liberalization on
government tax revenues in Kenya. The study had the following objectives; to assess
the effect of trade openness on government tax revenues in Kenya; to establish the
impact of international trade on government tax revenues in Kenya; to determine the
effect of foreign direct inflows on government tax revenues in Kenya; and to
moderating effect ICT usage on trade liberalization and government tax revenues in
Kenya. The study was underpinned by the theory of public finance and public choice
and the theory of competitive advantage. The study adopted an explanatory research
design and used secondary data sources from the Kenya National Bureau of Statistics
(KNBS) and the Central Bank of Kenya and UN Comtrade as the sources of
information. The researcher used secondary data that span 32 years from 1990 to 2021
because of the sampling adequacy for the regression modelling. Data was analysed
descriptively and inferentially before it is presented in tabular format. The descriptive
statistics showed that the tax revenues on consumption have grown from 85% in the
1990s to 90% of government tax revenue in 2021 while non–tax revenues have
averaged 15% in the 1990s to 10% of government tax revenue in 2021. The
indications are that tax collections have largely lagged behind the GDP growth. The
trade openness ratio has constantly dropped from over 55% in 2012 to 24% in 2019.
The tax ratio has dropped from 20% in 1994 to 8% in 2021, while the trade tariffs
have averaged 8% in 2004 and 2021, while the FDI: GDP ratio is marginal and has
stayed relatively below 5%. Based on the regression analysis, the trade openness (β1 =
0.5547; t = 8.73, p < 0.00) and trade tarrifs (β2 = 0.6422; t = 10.15, p < 0.00) and ICT
usage (β4 = -0.7889; t = -2.60, p < 0.05), were statistically significant while FDI (β3 =
-0.0585; t = -0.89, p > 0.00) was not significant in explaining the changes in tax
revenue. The study findings showed that the ratio of external trade and international
taxes has a positive effect on tax revenue while the ratio of FDI does not. ICT usage
has a negative moderating effect on tax revenue. Based on the findings the study
rejected H01, H02 and Ho4 but does not reject H03 and concludes that trade openness
and Trade Tariff have a positive impact on tax revenue in Kenya, while FDI does not.
ICT usage has a negative moderating effect on tax revenue. The study recommends
that the government t