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It is wrong to imagine that Kenya can tax itself to prosperity

By Francis Karugu | October 8th 2018

The debate on taxation is not unique to Kenya. In America, most Republicans lean toward “small government” and therefore the school of thought that taxes need to be cut.

The Democrats on the other hand lean toward big government and therefore defend the case for more taxes. Perhaps the biggest debate during Obama’s presidency was the healthcare debate. It became so divisive that some analysts say it is Obamacare that gifted Americans and the world Donald Trump.

Nobody likes government interference, at whatever level, and the less people feel that government is not interfering in their affairs, the happier they are. However, it is delusional to imagine a situation without government, which is why governments need money to operate; leading to the justification of taxation.

For a long time, successive administrations have largely operated deficit budgets. In our case, this has largely been caused by government inefficiencies, whose main variable is the public wage bill.

This has left successive governments with the ever growing need to raise revenue, with the urge to increase taxes, which is the main source of government revenue.

I refuse to join the bandwagon that is calling on Kenyans to refuse to pay taxes, because that will be impractical. However, we must be prepared to speak truth to power that the trajectory of the Jubilee administration to increase taxes carelessly will be unsustainable in the long run.

Any analysis of the Big Four agenda shows that theoretically, those are good proposals. We all want good healthcare availed to everyone; we want food and housing as we want more industries to create jobs for the youth. But that does not justify an overnight raid into Kenyan’s already thin wallets.

The handle

Winston Churchill warned his people against the evils of over taxation, giving the most practical analogy yet — “I contend that for a nation to try to tax itself into prosperityis like a man standing in a bucket and trying to lift himself up by the handle.”

This is exactly what the Kenyatta-Ruto administration is trying to do. It is time for Kenyans to ask whether we need all the four pillars today, and whether we are prepared to pay more taxes for them, or we can pack some until we can afford.

The way the government is in haste to implement them is astounding. Is this why the 2018/2019 budget was overflowing because of being unreasonably ambitious? If you compare the other East African Countries, their budgets for 2018 were modest, perhaps in full realisation that they needed to live within their means. Compared to Kenya, our East African neighbours presented significantly modest financial spending plans.

Tanzania was more frugal with a TSh32.4 trillion (KES 1.4 trillion) spending plan.

Uganda was next with an estimated UGX 30.9 trillion (KES 800 billion), followed by Rwanda with RWF 2.4 trillion (KES 281 billion). Even summing up these budget estimates, Kenya intends to spend Sh600 million more than Tanzania, Uganda and Rwanda combined.

Our neighbours

Kenya’s budget per capita is Sh70,000, while the average budget per capita for the rest of other East African countries is Sh25,000. The only way that the Jubilee government can defend a budget per capita that is three times that of our neighbors is by demonstrating that our quality of life is three time better than that of our neighbors, which is, of course, far from the truth.

The government came up with an ambitious spending plan that is not geared towards productivity, but which is aimed at creating a welfare state that provides healthcare to people who can’t pay for it, and housing to people who can’t afford those houses.

This is why the government is hell-bent on increasing taxes on an already overtaxed populace, and it won’t work.

History has proven that when people perceive weariness from taxation, they look for ways to avoid taxes, and when it takes a criminal bearing, tax evasion.

This is by no means good news to the Kenya Revenue Authority. However, KRA stands accused of structural laziness, and should be the one advising on the impracticality of this policy.

KRA should not just sit and try to implement tax regimes that will leave them with more receivables than realised revenue.

For instance, out of 15 million people who are engaged in income generating activities, KRA only collects taxesfrom 2.5 million, according to their own data.

It is this 2.5 million people that the government wants to tax more by introducing a National Housing Development Fund, instead of reaching out to the 12.5 million that KRA’s structural laziness allows to continue operating outside the tax brackets.

This modus operandi is short-termism and indolence, which exposes the thinking bankruptcy of our policy makers.

Mr Karugu is a strategy and analytics consultant based in [email protected]



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