Ethical tax compliance must be rooted in integrity above all else

In Kenya and around the world, tax compliance remains a major challenge.

While governments rely on taxes to fund essential services like healthcare, education, and infrastructure, many taxpayers still find ways to avoid or evade their obligations.

At the heart of this issue lies ethics, moral principles that guide behaviour and shape how tax systems function. Ethics in taxation is not just about following the law; it’s about doing what’s right. Ethical taxpayers understand that paying taxes is a civic duty. They maintain honest records, declare income truthfully, and plan their tax affairs in a transparent manner. Unfortunately, some taxpayers may justify non-compliance by pointing to government inefficiencies or corruption, while others follow the crowd, assuming cheating is normal.

In Kenya, the Kenya Revenue Authority (KRA) has made efforts to simplify tax processes and promote voluntary compliance. Tax audits are also used to detect noncompliance. However, ethical behaviour must go beyond fear of audits – it must be rooted in personal integrity.

In a move to reinforce this, KRA dismissed 19 staff members in the second quarter of the financial year 2024-25 for misconduct, including fraud, impersonation, and absenteeism.

These actions followed 246 corruption reports via its whistleblowing platform, with estimated tax losses of Sh4.39 billion.

This crackdown is part of a broader strategy to restore public confidence and reinforce integrity within the institution, highlighting that ethical lapses not only undermine revenue collection but also damage the credibility of the entire tax system.

This issue is not unique to Kenya. In South Africa, former auditors from the South African Revenue Service (SARS) were arrested for their role in a R321 million tax evasion scheme.

This case revealed how unethical conduct within tax authorities can lead to massive financial losses and severely damage public trust. It serves as a powerful reminder that integrity must be upheld at all levels of the tax system, from taxpayers to tax enforcers. When tax officials abuse their power or apply rules inconsistently, they undermine the system and encourage non-compliance. For example, collusion between importers and customs officials to misclassify goods using incorrect Harmonised System (HS) codes results in lower duties and unfair competition.

Ethical revenue authorities treat all taxpayers equally, provide clear guidance, and resolve disputes fairly. They invest in systems that reduce corruption and hold staff accountable to a code of conduct. Countries such as Georgia and Rwanda show that ethical tax administration reforms, focused on transparency, anti-corruption, and institutional integrity, can boost compliance and revenue collection. According to Kenya’s National Treasury, the tax-to-GDP ratio was 13.2 per cent in the financial year 2024-25, below the medium-term target of 20 per cent by 2030. With reforms like those in the countries on the graph above, Kenya would achieve a higher ratio, showing the power of ethics-driven tax systems.

Kenya can still improve its tax performance by adopting integrity-driven reforms like those in Georgia and Rwanda, which boost compliance and revenue through transparency and accountability.

On the other hand, when ethical conduct is embraced, everyone benefits. Governments can plan better, businesses operate fairly, and citizens feel more connected to national development.

Building a more ethical tax culture requires understanding not just the rules, but the reasons behind them. Ethics should be part of financial literacy programmes in schools and communities. Public officials and business leaders must model ethical behaviour. When leaders comply with tax laws, others are more likely to follow.

Both taxpayers and tax officials should be guided by written ethical standards, with consequences for violations. Digital systems can reduce human discretion and make tax processes more transparent. Organisations should therefore invest in technologies that support ethical conduct and provide checks and balances.

To further promote transparency, whistleblowers should be protected and rewarded.

Ethics is not a soft issue; it is a powerful force that shapes how tax systems work.

We have an opportunity to strengthen our tax culture by promoting integrity among taxpayers, tax advisors, and revenue officers.

The authors are consultants within PwC’s Tax Line of Service