The Finance Bill 2023 has been tabled before the National Assembly and after further restructuring upon factoring public input, will soon join our law books.
The process is expected to yield a statute that will have drawn inspiration from the evolution of tried and tested systems elsewhere in the globe.
The raft of tax changes contained in the Bill have a not-easily-discernible silver lining. Encouragingly, the ongoing healthy national debate, has brought to the fore theories and policies consistent with sound economic reasoning and reality.
Kenya, having embarked on a fresh journey and whose destination is attaining convergence to advanced countries in one generation, must not lose sight of its developmental north star.
At independence, President Jomo Kenyatta declared war on ignorance, disease and poverty. More recently, Vision 2030 and the 20 Sustainable Developmental Goals’ blueprints have ensured Kenya’s economic renaissance remains in the national psyche.
History is replete with examples that provide insights and the begging question hence becomes - which nation currently enjoys the kind of high standard of living as a result of breakneck growth rates based on a formula of hard work, high rates of capital formation and investment?
Hong Kong, Singapore, Taiwan and South Korea, often labelled as the “four Asian tigers” or “dragons” have risen dramatically, setting themselves apart.
Like them, Kenya is neither mineral nor oil endowed, yet gifted with talented and well educated populace. With the foundations of economic prosperity already in place, we are now set to leapfrog into the first-world just as they did.
One way of achieving remarkable growth is by leveraging the latecomer advantage as the “dragons” did. This will see Kenya benefit from the free-rider effect which achieves technological innovation and industrial upgrading by imitation, import and/or integration
We learn from the dragons, who employed the services of tax review commissions, that a gradual movement in the direction of a more broad-based, lower-rate system is a place of congruence. The period preceding this phase is characterised by sacrifice as internal taxes are raised to finance government programmes through taxes targeting consumption.
Often this means tipping the total tax burden in favour of indirect taxes so as to hold down direct taxes. That certain statutes which suited their cash starved circumstances are continuously coming up for review, with some being repealed.
One tenet common among the dragons is that, used creatively, tax-policy facilitates economic growth by stimulating risk-taking, investment and hard work.
They include, investment incentives to venture capital firms in the form of reduced corporation tax-rates, investment tax-credits & tax free capital gains. Additional years of tax exemption or accelerated depreciation for new investments in machinery and equipment. Expensing all research and development expenditure.
All the dragons enjoyed double digit GDP growth rates, single digit unemployment rates, balanced budgets and consequently enjoy topnotch health care, education and other benefits we aspire for.
Regarding Kenya’s adoption of an export oriented economy, success is a duty, obligation and responsibility for our generation. So as we debate the tax bill, remember that Africa continues to earn scorn for not improving centuries’ old products and practices.
We have a chance to alter our outlook across the entire globe by breaking away from the retrogressive and stagnant economic models across Africa. Let us embrace strong state and strong nationalism.
The writer is an entrepreneur