Proposal to tax the poor risks deepening unemployment

National Treasury CS Henry Rotich addressing the media after presenting budget at Parliament on Thursday on June 13,2019. [Boniface Okendo,Standard]

Finance Cabinet Secretary Henry Rotich has made bold moves to cut spending and raise revenues to meet his ambitious Sh3 trillion budget.

To be fair to the Treasury chief who has been in the firing line for the manner in which the country has been accumulating debt, there are both positive and negative proposals in a budget aimed at reducing spending.

However, going after the poorest in society; day labourers, the unemployed and pushing sin tax past its elastic limits to raise extra cash, may just yield the opposite.

Frustrated by lack of employment, many graduates have opted for self-employment, abandoning their certificates to fumigate ticks, start cleaning services businesses, offer catering and work as security guards.

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These small businesses are jobs without benefits and literally fall within CS Rotich’s minimum taxable income of Sh13,486 per month for people who are not supposed to pay taxes.

Some, encouraged by the IT revolution and government efforts to facilitate them through Ajira, are making money from the cyberspace-though not enough.

Forcing them to pay Sh10,000 for registration in the next three years in lieu of income tax with effect from January 1, 2020, even before they start making the money, is a slap on their faces.

The cyber-world is a better place to start for youngest Kenyans who have no money to spend on rent except just enough for data bundles to set up a cereal shop on Facebook. Perhaps Rotich thinks Sh10,000 is not much, but for people struggling to make sales while purchasing power in the economy tanks, this is discouraging. 

And it seems like Rotich is talking from both sides of the mouth. In the same budget that he read in Parliament yesterday, the CS talked big on how the Government was laying the groundwork to enable small businesses become profitable by, among other factors of easing the cost doing business, making their access to credit easier. Small businesses - and they are the most in Kenya - can barely live beyond their first birthday, as they grapple with cut-throat competition, lack of market and low capital. Rotich should not offer them a noose, but a lifeline.

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Of course, everyone should pay their fair share of taxes, and SMEs are no exception. However, we call for pragmatism between the need for the Government to earn its taxes and the consumer to put food on the table.

The only time the former is acceptable is when it results into the latter. Unfortunately, taxes have neither reduced poverty levels nor bridged the chasm between have and have-nots.

It is however commendable that Rotich has seen why many small businesses do not want to formalise, fearing the taxman would slap them with huge penalties.

The move to have small firms hoping to list in the Nairobi Securities Exchange’s Growth Enterprise Market Segment (GEMS) market by forgiving their tax penalties and interest, on any outstanding tax for two years prior to the listing, is a big boost for SME’s that list under the GEMS programme. This will encourage them to list and clean their tax records.

It is also noteworthy that Rotich has ordered the national government to pay suppliers within 60 days, and we hope the county government will follow suit.

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This will go a long way in breathing life into businesses that have been on their death beds, having been denied critical liquidity to run their operations.

Rotich also made some other good proposals for young people. His proposal to exempt all services offered by plastic recycling plants and supply of machinery and equipment in these plants is welcome. The country has to grow sustainably, and after banning the sale of plastic bags, such a measure was long overdue.

A lower corporation tax (levy paid by companies) of 15 per cent for the first five years for any small business operating a plastic recycling plant will also go a long way in encouraging sustainable business opportunities for the youth.

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