TAXATION OF THE PROCEEDS OF ILLEGAL INCOME IN KENYA: A CASE FOR LEGISLATIVE REFORMS

Abstract

Governments around the world have an obligation to provide basic services to their citizens. To fulfil this obligation, there must be made available public funds. The main source of government revenue is through taxation. Various countries have various systems of taxation and rules which they use to impose such systems. The incomes to be subjected to tax could be from legal or illegal sources. This paper examines the controversy around taxing income from illegal activities, around the globe in general and Kenya in particular. In discussing this topic, this paper reviews decided foreign cases and various interpretations of existing tax statutes. It also looks at the various decided cases in Kenya and makes a conclusion that if the tax statutes were clear and unequivocal as expected then there would be no litigation in this subject of taxation of illegal income hence a call for legal reforms in this area. The author proposes various amendments to the Income Tax Act and concludes that the amendments should permit the relevant bodies to tax income from all sources. Income from illegal sources should therefore be taxed.

Key Words: Public Finance, Public Expenditure, Taxation, Income from Illegal Activities, Income Tax Act