State has to be accountable for how our hard-earned taxes are put to use

**A photo of Aram market in Rarieda sub-county.** [Isaiah Gwengi, Standard]

On October 29, President Uhuru Kenyatta stirred up a hornet’s nest during a ceremony by the Kenya Revenue Authority (KRA) to reward the best taxpayers. He chided Kenyans for demanding government services yet they were not willing to pay their fair share of taxes. Uhuru’s argument was that out of 19.6 million registered voters, there are only six million active taxpayers.

KRA records show there were about 5.5 million tax returns filed as at June 30. This data includes both individuals and businesses, which are treated as legal persons for purposes of taxation. It is interesting to note that majority of registered businesses file nil returns each year, meaning they pay no taxes. The net effect is that the number of registered voters who pay taxes is much lower than the president implied.

But of particular interest was the reaction of Kenyans, at least on mainstream and social media. The comments came fast and furious. According to them, they not only pay their taxes but they are also some of the most highly taxed people in the world. Besides the direct taxes paid from their employment or business incomes, their food, clothes, travel and leisure, and even medicine have been taxed in one way or the other.

According to majority of taxpayers, the bad guy in the room is the government whose officials enjoy extravagant perks and benefits while the rest of the money is stolen. The recently released Pandora Papers resurfaced with many taxpayers wondering why no public explanation has been given as promised.

This leads us three important questions: One, is it true that Kenyans do not pay taxes? Two, if it is true Kenyans do not pay taxes, is it a problem unique to Kenya only? Three, are the assertions by Kenyans true, thus giving them a legitimate reason not to give Caesar what is Caesars?

In reality, tax matters are a problem too complex to be comprehensively addressed in an article of a popular local daily. So I will focus on key issues emanating from the comments raised above. In an published on brookings.com in 2015 on why no one is paying taxes in low-income countries, it turns out that tax revenues in poor countries are very low.

According to data for the 2002-2011 period, while richer countries – which are part of the Organisation for Economic Co-operation and Development – collect about 33 per cent of their gross domestic product (GDP) from taxes, low-income economies collect only 12 per cent. In Kenya, the Economic Survey 2021 shows that tax revenues were Sh1.669 trillion with the rebased GDP estimated at Sh10.753 trillion. This translates to about 15.5 per cent of GDP.

Burdensome taxes

In a functional economy, it would be expected that tax revenues should be enough to cover at least a country’s infrastructure, social services and public goods needs. But a survey done in southern and eastern African countries indicates that many of their citizens are reluctant to pay taxes, which they view as unfair, burdensome and opaque.

Fifty-one per cent of citizens felt the taxes were too high and unaffordable, 12 per cent decried poor public services, while 10 per cent cited government wastage, theft of funds, and an unfair tax system, among others. In a different article, Oxfam projected that poor countries lose an estimated $100 billion (Sh11 trillion) annually to tax dodging by corporates and wealthy individuals. Africa alone is estimated to lose Sh1.54 trillion to tax havens every year.

The phenomenon of big companies and wealthy individuals evading and/or avoiding taxes has denied poor countries a lot of deserved finances for development. Since 2014, the International Consortium of Investigative Journalist has exposed this secret industry through the Panama Papers, Paradise Papers and last month’s Pandora Papers.

This is fueling income and wealth inequalities among countries, and between the poor and the rich within the same economy. As a consequence, with the global economy projected at $78 trillion (Sh8,000 trillion) in 2017, those at the bottom continue to sink deeper while those at the top exploit a rigged global tax system to enrich themselves.

Beyond the taxes enshrined in the laws of the country, other invisible forms of taxation can exert an extra burden on citizens. Wolfgang Fengler, in an article published in the World Bank blog in October 2011, talks of a burdensome inflation tax in Kenya. According to the article, food accounts for about 36 per cent of the average Kenyan’s expenditure, while energy and transport consumes another 27 per cent.

Thus, with the erratic increases in prices of basic goods and services, inflation becomes the worst form of tax to the poor. Besides inflation, taxes are a diversion of private economic units (individuals and businesses incomes) in order to finance public goods and services.

Thus, it is expected that the government will provide such services as education, healthcare, security, good infrastructure and other basic utilities.

Pay protection fees

When the government fails to provide these services in an affordable and acceptable quality and quantity, and citizens have to pay for them on their own, then they become a form of invisible taxes. The reality is that citizens shoulder this extra burden in addition to the taxes remitted to the State.

Even in the informal settlement schemes, people pay vigilante groups to provide security. Protection fees paid to police by businesses and matatu operators, bribes to access public services, and harambee contributions, among others, join the ranks of invisible taxation.

The mega projects promoted as public-private partnerships that have no direct tax funding will attract user service charges. These are taxes by a different name. One has to be a fool to believe otherwise. Ultimately, it is the citizens who shall pick up the tab to access these services. Besides, it is unlikely that the government has not underwritten these projects should they not raise enough revenues to meet the investor’s cost and profits.

As implied by Uhuru, paying taxes faithfully is the ultimate demonstration of patriotism, probably only second to laying down one’s life to defend the nation. The willingness of citizens to meet their civic duties and obligations by paying taxes also implies legitimacy on the part of the government. When citizens are not willing to pay legally binding taxes, it means a loss of faith in their own government.

A fair argument would be: why pay taxes only for the money to be stolen by the few with access to State power and connections? Why not use those taxes to take care of personal bills that the government ought to have provided anyway?

The starting point should be to make a public disclosure of taxes paid by those who seek State offices and senior public officers. It is not enough to request a tax-compliance certificate that can be fraudulently acquired by those who wield power and have money.

Otherwise, why should people who are not open about their taxes demand compliance from the rest of us? This is the first step to make the tax system transparent and accountable.

Second, we can’t pay taxes and wake up to news of billions disappearing from public coffers every other day. If we pay our taxes faithfully, the State must give an accurate explanation on their application.

As somebody observed recently on social media, paying taxes in Kenya presently feels like financing a criminal enterprise!

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