Cutting waste, not more taxes will seal the deficit

By MARK KAPCHANGA

QUESTION: What is your take on the Sh1.6 trillion budget?

ANSWER: It is unfortunate that the ambitious budget is skewed on taxation rather than other components of funding. This year’s budget relies heavily on the traditional approach of increasing taxes instead of seeking to generate money from other components of taxation like appropriations in aid.

Q: Which are these taxation components?

A: A majority of Kenyans are in the juakali sector — which to-date remains outside the tax bracket. Many others still find it easy to evade paying taxes. This financial year’s budget, however, failed to capture this critical bit and instead went for easy targets — landlords and Kenyans enmass through blanket taxation measures. Making it easy to register businesses for instance will see more businesses formalise their operations — thereby joining the tax bracket.

Q: What role has the Kenya Revenue Authority played in the tax evasion?

A: Revenue leakages begin and end with KRA. Its systems are unfriendly to businesses, dictatorial and non-innovative.

Q: What is the import of VAT on basic commodities as currently proposed by treasury?

A: By revisiting our tax base, Treasury has failed to peg our taxes on income. Imposing VAT on goods is good in terms of public finance management but VAT on essentials means even the poor will carry the cross. In other words, we will be financing our budget by increasing poverty in the country.

Q: Is taxing everything ideal?

A: This could be the most ideal path but we must have a mechanism to identify people who are vulnerable in the society. They should be cushioned through proper registration of people. This is not practical in this economy, as we need one unique identification number. As it is, therefore, it is difficult to identify the poor and thus impossible to carry out cash transfer plan.

Q: What are the likely dangers of imposing VAT on essential goods?

A: This move will interfere with the goods market. With increased commodity prices, buyers will transfer this scenario to the political market, which will then head to the labour market. Unions will agitate for higher wages and the cycle will end up again on the political market. Ultimately, the crisis we are fermenting through VAT may collapse a Government.

Q: So, where does this leave the Government?

A: Jubilee has two options. It can pursue the policy of subsidising food for everyone. The second one is to forget about taxes on food. Zero-rate them as they are until a system that captures the poor’s data is developed.

Q: Is the new Constitution to blame for all these crises?

A: This constitution was always going to be costly — more from the additive budgets, which do not take costing of functions seriously. We should have thought about this constitution in financial terms. In addition, we all acknowledge that there is a lot of wastage in spending at all levels. The central Government should have given guidelines on how counties allocate their funds.

Q: What would be the likely scenario if we had no wastage in Government?

A: About 30 per cent of the total budget in any financial year goes to waste. Everybody in the public sector is strategically positioned to eat. We have an ill-bred society with a philosophy of stealing from itself. People are now used to doing illegal things within the law especially in the public procurement where prices are unfairly inflated. The volume of waste means this financial year, we would lose about Sh500 billion. If it were not there, then we would not be having any deficit. We will therefore neither borrow nor tax poor man’s ugali.