Presumptive Taxation, Liquidity Constraints, and Tax Compliance: Experimental Evidence from Kenya

A government’s ability to enforce tax collection efficiently is one of the fundamental components of state capacity and, in turn, of economic development. The current proposal arises from collaboration between the researchers and the Kenya Revenue Authority (KRA), one of the most respected tax authorities in Sub-Saharan Africa. The research evaluates two interventions targeting two forms of tax evasion. First, KRA use third party data (e.g. utilities contracts) to identify landlords who are evading rental income tax and to develop alternative models of presumptive taxation. Second, KRA will allow a sample of firms to pay VAT at the time they receive payment from their customers, as opposed to the time they issue the invoice, thus addressing cash flow concerns and liquidity constrains. The researchers will rigorously evaluate the impact of both interventions using randomized controlled trials. The study findings will be of interest for tax authorities around the developing world.