Musalia Mudavadi: Don't expect tax rises, we just want more people to pay up

Prime Cabinet Minister Musalia Mudavadi during his vetting by the National Assembly's Committee on Appointments on October 17, 2022. [Elvis Ogina, Standard]

Prime Cabinet Secretary Musalia Mudavadi says there is too much misinformation being peddled about the Kenya Kwanza government's agenda by the opposition. He says there are Kenyans who should be paying taxes but do not because they are shielded. In an interview with The Standard, Mudavadi also tells BIKETI KIKECHI how Kenya Kwanza intends to raise revenue for its ambitious programmes and pay the huge government debt.

What is the reasoning behind the government's demand that every Kenyan above 18 years be brought into the tax bracket and how it will it be done?

There is a misconception there. Making it easier for potentially eligible persons to pay tax by simplifying registration procedures does not equate to "bringing every Kenyan above 18 years into the tax bracket".

What we are doing is to make a registration for tax contribution easier and more efficient and using this also as a way of creating broad awareness about one's responsibility to contribute to nation-building. I may add that the idea of a KRA pin number is anticipatory; it is not meant to tax every other Kenyan. It is a pre-emptive move, so that you grow up with it rather than having to hassle to get it.

The idea is meant to lessen tensions for Kenyans. In any case, a KRA pin is always a requirement when you apply for a job. It is also helpful to KRA in monitoring who has graduated as a taxpayer. It's good for the country. You can only misconceive it if you support tax evaders.

ODM leader Raila Odinga says Kenyans should not be over-taxed as they cannot afford the heavy burden because of the high cost of living.

The government hasn't made any official taxation proposals yet. When such proposals will be made, they must be approved or rejected by Parliament. I suspect there is confusion on existing punitive taxation measures put in place by the previous regime with what might come from our new government in the form a supplementary budget.

We have an economy where more than 1.4 million people are unemployed, close to four million are under-employed and many more continue to join these ranks. We therefore need to invest in ventures that will create jobs for these Kenyans. It means government must support those who can create jobs.

Secondly, we have close to 10 million informal sector workers-mama mbogas, hawkers, mkokoteni pushers-who are often left out in provision of government services to foster and uplift their services. We need to similarly invest in this informal sector, to grow and make larger contributions to the economy.

What is the relationship of the above policies to taxation?

Investing in economic recovery results in creating jobs, and so improving the business climate will cost significant resources. That means we need to raise more tax revenue to meet these objectives.

The question then is how?

We believe we can raise more revenue by having more Kenyans and businesses pay their fair share of taxes. This way, Kenyans and businesses can eventually pay less taxes as a result of the broadened tax base.

Can the government meet the promise it made to Kenyans in regards to job creation without Kenyans being asked to pay extra taxes?

Yes. We have immediate, medium- and long-term objectives to grow the economy, create jobs and expand the tax base. There will be more people from whom to collect tax. It is about creating capacity to broaden those who can pay tax and catching tax evaders, but not increasing tax. A wider tax net will eventually create the conditions for taxation rates to eventually start falling.

The Hustler Fund, which will provide collateral-free lending to MSMEs at single-digit rates, will be launched shortly. It will provide relief to especially micro-enterprises that currently borrow from shylocks and digital lending platforms, which charge interest at 10 per cent per day, which amounts to an excess of 3,600 per cent per annum.

Investments here need resources, and our measures to improve compliance for tax is simply geared to improving the environment for small and big businesses alike.

The opposition claims that when Narc took power in 2003, the economy was worse, but they were able to put the country back on track, including rolling out free primary education without raising taxes.

Nostalgia can be dangerous for an opposition that is supposed to oversee a current government. It's time we realised that we are facing the worst financial and economic situation the country has ever faced in decades, across every parameter that is measurable.

You cannot contrast similar things, you compare them. Therefore, I don't know what informs anyone that the Kenya Kwanza government will not surpass the Narc achievements, given our realistic plan.

How is government going to creatively raise revenue for investment, service its debt burdens and even pay pending bills, in ways that don't rely on traditional taxation measures?

We are developing several measures in this regard. Floating bonds to enable payment of pending bills and unlocking completion of stalled projects and several other measures will enable us meet our obligations and invest without relying solely on taxation revenue. Our measures above will not only act as a stimulus in the economy, but will additionally create investment opportunities for the private sector.

There are Kenyans who should be paying tax but do not because they are shielded. I don't believe Kenya can only have 600,000 VAT payers. It is why we are saying everybody should pay their fair share of taxes without burdening others. We understand why this is not sitting well with some of those used to evading tax that the opposition appears to be in bed with.

The opposition claims that NSSF and NHIF are mismanaged and it will not make sense pumping more money there instead of reforming those institutions. What is your take?

A country that saves more, borrows less. It has more domestic resources to guarantee a post-pension life for its citizens, and it can use these resources during the working lifetime of the saver to invest and further expand the economy.

In our plan, we intend to restructure these two vital institutions to benefit Kenyans. But by what stretch of fertile imagination are these contributory funds tax? The government is encouraging working Kenyans to save enough through NSSF to insure themselves in retirement. For every penny you save, the government and employer will top it up in equal measure. The final beneficiary is that retiring Kenyan worker. Yet the opposition is opposed to this valuable proposal.

NHIF is health insurance that government seeks to make more efficient and beneficial to majority Kenyans. Again, it is those with means to private medical insurance who happen to be opposed to the pro-rata proposal that the more you earn, the more you contribute to help other less able Kenyans. Labelling these noble contributions tax is atrocious.

Let us remember that many small businesses are just one illness away from closing down. When the owner of a small business falls sick and there isn't a well-funded and well-administered NHIF, paying hospital bills out-of-pocket often kills their businesses. Families have been bankrupted by medical bills. I am sure every other Kenyan knows another who is a victim.

There is also an argument that the president and the Kenya Kwanza government are implementing policies without seeking the approval of Parliament?

Bear in mind that the government has barely been in office for 90 days. Therefore, such thoughts emanate from idle minds informed by pent-up anger of losing an election. The sooner some get over sulking over election loss, the better. We need to get over grudge politics.

The truth so far is that there is no policy, which requires Parliament approval that has been implemented without such approval. So far, everything we have done as the Executive has been studiously legal.

Can the government do without borrowing?

All countries borrow but the problem we have is borrowing for projects that do not positively impact the economy. External borrowing can help a country grow its economy, provided money borrowed is for projects that have a positive return, the domestic economy is robust, there is good governance, and the country earns sufficient foreign exchange to repay debt.

Is the government working on renegotiating its debts?

First, I underscore that we are a responsible government and it is in our interest to honour all sovereign obligations. The government is therefore developing an appropriate strategy for smooth debt settlement.

The strategy will seek favourable repayment terms, avoiding commercial loans, deploying public private partnerships in capital intensive infrastructure projects and insisting on value-for-money in how we use borrowed funds. For instance, we cannot use loans to fund recurrent or unbudgeted expenditure. This is the root of the bourgeoning culture of budgeted corruption.