Custom reforms, institutional capacity and customs Revenue collection at Busia and Malaba Border Posts, Kenya

Abstract

Custom reforms are crucial for the economic health of any nation. In Kenya, despite an increase in tax revenues from Ksh 2.166 trillion in the 2022/2023 fiscal year to Ksh 2.407 trillion in 2023/2024 an increase of Ksh 240.565 billion, which includes Ksh 791.368 billion from customs taxes reflecting a growth of 4.9% the government continues to face deficit financing. This has necessitated reliance on foreign loans to bridge the revenue shortfall, raising significant tax concerns for future generations. To mitigate government debt, there is a pressing need to enhance current tax revenue. This study investigated the moderating effect of institutional capacity on the relationship between customs reforms and customs revenue collection at the Kenya Revenue Authority (KRA). The independent variables included customs automation reforms, audit-based controls, and enforcement reforms, while revenue collection served as the dependent variable, with institutional capacity acting as a moderator. The research was guided by theories such as commodity tax reforms, the unified theory of acceptance and use of technology, and public expenditure theory. Primary data was collected through a structured questionnaire featuring closed-ended questions. The target population consisted of 1,823 management and technical staff, from which a sample of 328 respondents was selected using a stratified random sampling technique. Data analysis was performed using the Statistical Package for the Social Sciences (SPSS), employing descriptive statistics (means and standard deviations) and inferential statistics (correlation and multiple regression analysis) to explore the relationships between variables. The findings from the multiple regression analysis indicated that customs automation reforms significantly and positively influenced customs revenue collection ( β 1 =0.187, p=0.000<0.05). Similarly, audit-based controls ( β 2 =0.208, p=0.000<0.05) and enforcement reforms ( β 3 =0.111, p=0.016<0.05) also had significant positive impacts on revenue collection. Additionally, institutional capacity was found to negatively and significantly moderate the relationship between customs automation reforms, audit-based controls, enforcement reforms, and customs revenue collection at the Busia and Malaba border posts ( β 4 =0.176, p=0.000<0.05). However, it positively moderated the relationship between customs automation reforms ( β 5 =0.067, p=0.007<0.05) and audit-based controls ( β 6 =0.054, p=0.026<0.05) with customs revenue collection. Furthermore, it also significantly influenced the relationship between enforcement reforms and customs revenue collection ( β 7 =0.456, p=0.000<0.05). The study recommends that the KRA fully implement customs reforms to strengthen customs automation, audit-based controls, and enforcement measures for enhanced revenue collection. It concludes that customs reforms have a significant positive effect on customs revenue collection at the Busia and Malaba border posts. To optimize these reforms, the KRA should harmonize their efforts, prioritize infrastructure development, and focus on implementing Information Communication Technology and automated systems.