Are Presumptive Taxes a Good Option for Taxing Self-Employed Professionals in Developing Countries

Research on tax evasion by the so called ‘hard-to-tax’ in low and middle-income countries has largely focussed on farmers and SMEs; professionals are rarely considered in any discussion about the ‘informal sector’. Yet, considering their earnings, the absolute amount involved in evasion among professionals is probably higher than farmers and SMEs and they can cause serious damage to the tax systems of these countries. Researchers on tax in developing countries has almost exclusively focussed on multinational enterprises and challenges in the international tax system; but there is a growing realisation that domestic resource mobilisation is important and requires urgent attention. This paper makes use of qualitative data on tax evasion by lawyers and dentists in Kenya to argue that although presumptive tax regimes almost always exclude professional income, they can be a useful partial solution for taxing self employed professionals if they are well thought-out, meticulously designed and rigorously monitored.