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Abstract: Kenya Revenue Authority (KRA) collects more than 95% of all government revenue. Through taxation, government is able to raise revenue that is sufficient for public spending without too much borrowing. Tax is a compulsory payment imposed by the government on the incomes and profits of individuals and corporate bodies. Taxation is the main source of central government revenue. The amount of tax revenue realized or expected by any state is determined and influenced by various economic factors. The factors range from micro to macro-economic. In Kenya, tax revenues have for quite some time, remained low relative to the effort and tax policies in place. The Kenya government has always been in search for the appropriate policy strategy to enhance tax revenues and boost its revenue profile. This paper therefore attempted to examine the effects of a selected relevant macroeconomic policy variable that can serve as a foundation variable for achieving such policy objective. The main purpose of this study is to examine the effect of Exchange rate on tax revenue performance in Kenya. The approach for this study used annual time series secondary data for the period 2003 to 2018 to estimate a linear model of tax revenue performance and the selected macro-economic factor. The data was source from the Central Bank of Kenya, Kenya National Bureau Statistics (KNBS), Ministry of Finance data on National Budgets and other Government records. The study used correlation and regression analysis research design. The findings established that exchange rates had a negative relationship with tax revenue collection. The R2 value which is used to show to what percent do the explanatory variables explain the dependent variable was found to be 0.9937 while the p values for all variables were found to be significant at 5% level of confidence. The findings will inform the government on what areas to invest its resources in order to boost and improve tax revenue performance. |
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