William Ruto's Sh3tr tax revenue target out of touch with economic reality

President William Ruto during the 2022 Taxpayers' Day at the Kenyatta International Convention Centre, Nairobi on October 28, 2022. [PCS]

The Hustler administration seems to be on an urgent mission to raid the pockets of the middle-class and the masses they promised to protect from the excesses of the dynasties less than 90 days ago. The Sh3 trillion tax revenue target for the 2022/23 fiscal year sounds comical. But, with the targets coming from top political leaders in the country, they cannot be wished away as political rhetoric.

It could signal a new dawn for tax increases and it doesn't seem to matter the tax burden already in existence. To these political elites, the end justifies the means. Ironically, the 24-member Cabinet that boasts a total networth of about Sh15.2 billion did not provide tax payment records.

It is not enough for the nominees to simply confirm they have presented a tax compliance certificate to the vetting panel. The tax payers must be given a chance to verify if their leaders have paid their dues in full to Caesar in conformity with their declared wealth. This is the spirit of the constitutional requirements on openness, transparency, accountability and public participation.

Having said that, a troubling question is whether the president is adequately apprised of the true state of the economy and the economic well-being of the hustlers he represents. If he was, then common wisdom dictates his administration should demonstrate realistic ambitions and empathy.

Chilling numbers

For the avoidance of doubt, I am a confessed optimist and a firm believer of economic possibilities. Yes, it is possible to achieve the Sh3 trillion revenue target in the medium-term. In fact, I am of the opinion that Kenya Revenue Authority (KRA) is probably collecting only 45 per cent of the taxes due. That means the country could be generating at least Sh4.5 trillion in taxes annually. This shall be evident somewhere down the line in this article.

The rules of my trade dictate that I derive my opinion and conclusions from cold facts and verifiable evidence. The information on mobile money transactions and volumes that the president wondered about against the registered seven million PIN numbers is factual as referenced in Central Bank of Kenya's (CBK) Bank Supervision Report of December 2021. According to the report, a total of Sh622.14 billion was transacted through mobile money platforms in 2021, up from Sh605.69 billion in 2020. This translates into an average of Sh20.74 billion daily, from an estimated 65.1 million active mobile money accounts. The number of transactions topped at 189.8 million in 2021.

However, to equate the volumes of mobile money transactions as evidence of increased economic activity that must reflect on the country's national revenues is a gross misrepresentation of data and analysis of evidence. Any meaningful conclusions can only be made by dissecting the drivers of the transactions and contextualising the data into the economy, trends and consumption behaviour.

Cashless transactions

For instance, CBK attributes the increased usage of mobile money services to the Covid-19 protocols. These encouraged consumers to use cashless means to transact and waived charges for transaction values of up to Sh1,000. The report itself indicates a decline in the volumes of cash-based transactions and the number of people accessing bank branches for transactions. Besides, related data points to most mobile money accounts as largely associated with mobile-based loan facilities that hustlers have exploited to survive the hard economic times.

In this context, the president cannot dissociate himself from the pleas he had to make to mobile money service providers to delist over 4.5 million hustlers from Credit Reference Bureaus. While the two information sets appear different, they all refer to the same thing. These facts are corroborated by the biennial FinAccess Report of 2021 that indicates that the financial health of households declined to 17.1 per cent from 21.7 per cent in 2019. Of the respondents sampled, 73.6 per cent reported their lives had worsened in 2021 compared to 51 per cent in 2019. Households often going without food and those sometimes went without food increased to 12.3 and 41.2 per cents in 2021 from 7.7 and 25.6 per cents in 2019, respectively.

Revenue trends

The target of Sh3 trillion tax in 2022/23 fiscal year implies that tax collections have to grow by 47.49 per cent this year. To understand whether this is feasible or not, we can compute simple trends from the past two administrations. The Kibaki administration grew tax revenues from Sh196.97 billion in 2002/03 to Sh969.08 billion in 2012/13 when he left office. This represents a 392 per cent growth, translating into an annual average growth rate of 39.2 per cent. The associated public debt growth was 185.79 per cent or Sh1.17 trillion over the 10-year period.

The Uhuru administration grew tax revenue from Sh969.08 billion to Sh2.034 trillion as at June 2022, translating into 109.89 per cent or an average annual growth rate of 10.9 per cent. The associated public debt growth is 379.79 per cent or Sh6.82 trillion as at July 2022. In view of these facts, how is the Hustler government going to grow tax revenue by over 47 per cent in the remaining nine months?

Key reforms needed

To achieve any meaningful growth in government revenues in the medium term, there have to be bold and decisive tax administration reforms and re-design of the economy. First, the fewer PIN number registrations compared to mobile transactions is due to a defective economic policy that has pursued the informal sector as official strategy. While it offers refuge to misrepresent actual economic performance and job creation for political expediency, it cannot cover for actual taxes. To accept 83 per cent informal sector as a standard is economic mediocrity per excellence.

Second is to streamline tax administration systems in the country. The tax dispute between KRA and brewers on the right computation of excise duty is a true testimony of how complex our taxes are. There have been multi-billion cases around stamp duties and malpractices among the taxman's own staff. For as long as KRA itself remains a leaking ship, the full realisation of tax revenue will remain at best a mirage. But this is a manifestation of our rotten public values at both tax collection and public spending levels. The haemorrhage is from both sides of the equation.

Finally, no country in the world has ever achieved top levels of tax compliance without accurate centralised national data of its citizens and corporates. All countries with the highest tax compliance levels have a single citizen identifier number for both people and businesses. The Huduma Number concept was the definitive measure to eliminate tax cheats if correctly done and implemented.

If each one of us had a single number within a centralised national database, no landlord would be capable hiding their rent income from the State. No one would be able to hide property transactions and family business incomes from the taxman. Unfortunately, the Huduma Number fiasco has turned out to be another tenderprenuer project to siphone billions from public coffers. What a tragic house of cards this nation is!