Corporate governance is key to addressing country’s budget deficit

Wednesday, June 9th, 2021 00:00 |
KRA headquarters. Photo/File

Nahashon Mathenge      

Quality Corporate Governance is a vital component of any business. It is the engine that ethically drives the actions that lead to stakeholder and enterprise value growth. 

Understanding of interests, needs and expectations of stakeholders is the starting point towards realisation of effective governance.

Whether public or private, governance is primarily driven by the Board. The enactment of good corporate governance guidelines like Mwongozo Code of Governance, Article 10 of the Constitution of Kenya 2010 on National Values and principles of Governance, as well as Chapter Six of the Constitution on Leadership and Integrity provides a solid foundation for the practice of quality governance.

Board Composition is a significant contributing factor to the performance of a Board of Directors. It is crucial for an organisation to get the right mix and balance of people to sit on its Board.

Embracing an ethical culture brings about an environment of trust, transparency and accountability across board.

Commitment to the tenets of ethical culture, performance and effective control over results and risks should begin at the top and trickle down to all aspects of a business there by leading to both legitimacies earned by the Board to lead the organisation while achieving relevance in the eyes of stakeholders.

Nevertheless, research has shown that most businesses and government agencies overlook these key aspects and consequently, they face myriad challenges as result of poor governance.

How an institution is governed may lead to any of these three outcomes: prosperity, decline or death.

Whatever the outcome, the responsibility lies with those charged with Governance – The Board of Directors.

The alleged or confirmed rampant cases of corruption in public institutions in Kenya is a case in point which results to wastage of public resources thus encouraging tax evasion due to poor services to citizens who are unable to make a logical connection between paying tax and the value they get.

Following the introductory of iTax platform by the KRA, tax administration system in Kenya has greatly improved service delivery to the taxpayers in general and has also resulted to increase in the revenue collection.

To maintain this positive trend, the KRA and the business community need to constantly develop and implement good governance programmes aimed at preventing, investigating, and prosecuting corruption and other tax and business related fraudulent activities committed by both the executive management (employees) and directors.

This will be only achieved by putting in place good governance systems.

For example, formal structures for decision-making should be put in place in all revenue departments.

Further to that, committees need to be set up to handle specific issues such as implementation of anti-corruption or integrity-enhancing strategies with a key focus on improving corporate governance.

For any particular governance model, tax revenue administrations should clearly identify and articulate problems and deficiencies in its ICT system, and consider strategies for reforms and modernisation based on international best practice.

Following the introductory of iTax, the government should focus on continuous improvement of the system to meet emerging needs.

For instance, iTax system should allow a taxpayer to utilise tax credits to offset against any tax liability since such credits are entitled to the taxpayer at the point they arise, this will also cushion cash flows constraints experienced by the business community under the Covid-19 environment. Ultimately this will enhance liquidity for businesses to enable them maintain and create job opportunities.

To enhance revenue collection and minimise public resource wastage, the Government of Kenya needs to review the corporate governance. The writer is Senior Tax Manager - PKF Kenya 

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