Why a bankrupt government once scrapped income tax

There have been times Kenya has been forced to resort to unconventional approaches to bridge financial gaps when revenue collection dips.

Such desperate measures were suggested at the dawn of Kenya’s birth as a colony a century ago when the country desperately needed money. Although the drastic action took place then, the debate was as contentious and emotive as the Finance Bill that is raising political temperatures today.

Some  State functionaries knew the coffers were empty and had to look for alternative sources of revenue, including the scrapping of income tax, which they argued was not likely to yield more than £100,000 (Sh17.08 million at today’s rate)

The abolitionist of the income tax was in favour of scrapping income tax and advocated for the introduction of import duty which would target rice and wheat from India and Europe in large quantities.

During that innocent age where a government employee was allowed to air his view without fear, the Director of Public Works, W. McGregor Ross argued against the move. “We are to some extent a swank community, living more or less on a swank plane over the bare cost of living. If now we are proposing to put a tax on luxuries, a very possible result may be that people will start to do without the luxuries,” Ross reasoned.

He was unconvinced the revenue collected from the import duty which was proposed to be ten per cent would balance the loss created by abolition of income tax.

Attorney General, R. W. Lyall-Grant, the prime mover of the scrapping of the income tax so as to pave the way for the introduction of import duty, was cautious:  “The intention of the ordinance is repealing the Income Tax Ordinance but there are certain difficulties in the way. Until the Commissioner of Income Tax has finished his duties, it is felt that it will be rather dangerous to repeal the ordinance as a whole which will cut away his grounds for charging any income tax in 1922.”

However, those supporting the scrapping of income tax argued the debate was just academic since it only affected a minority employed in the government and private sector and would not lead to capital flight, anyway than some of the other forms of taxes. The feelings of employees were captured by J.E Coney after the Finance Bill was passed. “I hope everyone who has to pay income tax for the year 1921 will do so without any opposition now that Income Tax is being repealed.

Buoyed by this success, Lord Delamere pushed through a clause allowing the State to regulate the price of wheat and allow millers to import the produce whenever the country faced shortage.

There were reservations that Kenya had enacted a law that was unfair to the rural folk who would not be expected to buy wheat flour at higher rates  as they had to cater for railway freight.   The Asians, too, were unhappy as the majority were traders who mostly relied on imported goods for commerce while a majority of whites were in the civil service where they would not pay income tax.

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