Tax Policymaking and Stakeholder Inclusion

A Governance Perspective on Fiscal Legitimacy in Kenya

Abstract

This study examines the relationship between tax policy-making processes and stakeholder inclusion in Kenya, with a focus on fiscal legitimacy and taxpayer compliance. The analysis draws on a document corpus comprising national budget statements, Finance Acts, public participation reports, parliamentary committee proceedings, and policy briefs produced between 2013 and 2024, a period marked by significant fiscal reforms, including Value Added Tax (VAT) restructuring, digital service taxes, and the introduction of the iTax platform. Using an exploratory qualitative design, the study applies thematic document analysis, combining inductive and deductive coding to identify patterns in institutional frameworks, participation practices, and accountability mechanisms. The study utilises Governance Theory together with Public Choice Theory and Stakeholder Theory frameworks to explain how stakeholder inclusion in tax policy-making shapes fiscal legitimacy. Findings show that participation is largely procedural, with formal hearings and memoranda not consistently influencing final policy; representational disparities are significant, as 62% of submissions came from large corporations and professional bodies, while only 18% were from civil society and informal sector groups; and feedback opacity persists, with limited reporting on how inputs shape policy. Second, representational inequality is reflected in the disproportionate influence of large corporate actors and professional associations, compared to limited engagement with informal sector groups and marginalized taxpayers. Third, the lack of systematic reporting on how public inputs shape policy outcomes creates feedback opacity, which weakens transparency and trust. The study finds that fiscal legitimacy is more likely to be strengthened where participation is early, inclusive, and accompanied by transparent feedback loops. It argues that the quality, not merely the presence, of stakeholder inclusion constitutes a key mechanism linking tax policy processes to compliance outcomes. By elucidating the influence of procedural design elements of participation on legitimacy, the study enhances the discourse on governance and public finance by proposing a process-oriented framework for understanding fiscal legitimacy in developing nations.