Effects Of Value-Added Tax On E-Commerce

E-commerce has emerged as a significant driver of economic development, yet it continues to face substantial challenges that hinder its progress. Among these, the introduction of Value-Added Tax (VAT) has emerged as a major obstacle, slowing its adoption. Existing VAT regulations for e-commerce are inadequate, and the current literature fails to adequately explain the relationship between VAT and e-commerce, raising concerns. This study aimed to evaluate the effects of VAT on e-commerce in Kenya by analyzing monthly VAT collections reported by the Kenya Revenue Authority (KRA), GDP growth rates from the Central Bank of Kenya (CBK), and data from the Kenya National Bureau of Statistics (KNBS) over a ten-year period (2008 to 2018). Using secondary data from these sources, the study employed descriptive and inferential statistics, with results presented through tables and graphs using the Statistical Package for Social Sciences (SPSS). The analysis revealed a Pearson correlation of 0.143 with a p-value of 0.00 for Tax Buoyancy and 0.212 with a p-value of 0.00 for Tax Elasticity, indicating a positive correlation between these factors and e-commerce. Regression analysis showed that 44.5% of the variation in e-commerce can be attributed to VAT-related factors, demonstrating a significant positive relationship. The study concludes that VAT Buoyancy enhances the robustness of the tax base and revenue collection, while Tax Elasticity influences revenue growth rates. Consequently, the current VAT measures significantly impact e-commerce in Kenya. The study recommends a continuous review of the tax structure to address administrative shortcomings, strengthen tax policy for ongoing evaluation of tax bases, and consider the impact of non-tax factors such as imports, consumption, GDP, interest rates, and inflation.