To tax, or not to tax, that's the big question for State

For a government that is perceived to be "religious," it has been profoundly mute on sin tax. [File, Standard] One could be forgiven for thinking that President William Ruto introduced the Finance Bill in Kenya, yet it has always been there. The only difference is that Kenyans have become homo economicus - economic men. Remember homo sapiens and erectus? The polls and the aftermath have kept economics in the headlines. That could be a sign that Kenya has come of age, showing symptoms of a developed country. Paradoxically, corruption also indicates we now value money but not the work that goes into making it. We hope that in the next phase of growth, valuing work and other input into making money will become the norm. Sadly, we imported the American constitution without a Protestant Work Ethic (PWE). Is that taught in schools? Economic issues will from now henceforth define our politics and its likely future polls will be won based on a simple question: Do you feel economically secure or not? One economic issue that will not go away is taxation. Those who live in developed countries know the centrality of tax and its linkage to representation. We give those who tax us the consent to do so. You thought you voted for your representatives to just distribute the Constituency Development Fund (CDF)? But we expect those who make decisions on taxation to be fair and just with a predictable tax policy. The basic truth is that citizens are willing to pay taxes as long as they see where the money goes. Let's leave the politics of taxation and ask what should be taxed. Why petroleum, beauty products, digital services, money transfers, turnover and rent? More often, we focus on the progression of tax - the more money you make the more tax you pay. A creative genius introduced VAT, which depends on your consumption and is seen as fairer. It's easier to collect and harder to escape, no wonder the revenue from this stream has been going up. Laws of supply Let's get to the specifics. Tax raises the price of goods and services. This, in turn, reduces the demand for that good or service as laws of supply and demand kick in. The government must balance when imposing a tax as the fall in consumption could lead to less tax. This is more so with luxuries. But there is a catch: addiction to luxuries. Do you notice how you are addicted to a regular haircut, plaiting, manicure, your internet, cable TB, wine or cigarettes? Economists have explained this using the price elasticity of demand. Simply put, if you raise the price of a good or service, how does the demand respond? Does it fall substantially or not? If the demand does not fall much, that's a good candidate for a tax rate increase. If you look at the aforementioned list, we still go for these goods or services even if the price goes up. It's worse when you have no substitute. Many of us use public transport whether fares go up or not. Switching to electric cars won't happen overnight, and neither can you build a house overnight. The government is determined to raise fuel VAT to 16 per cent. Internet and money transfer services are part of our lives. And demand for beauty products will always be there even if the tax goes up. What else is a must whether prices go up or down? Did I hear rumours that dowry and tithe are next? Taxes are not random, there is some economic science behind it. You can now explain why taxing food, water or medical services is so controversial. It would guarantee tax revenue, but what would happen to those who cannot afford it? That is where subsidies should be focused. Another controversial target is education. A good education is a route to upward and intergenerational mobility. That is why education should be affordable, without sacrificing quality. Let's not forget that taxes are not just for raising money, they can be used as incentives or disincentives to consume goods and services. Remember, tax holidays are meant to encourage investment and sin tax to discourage the consumption of cigarettes or alcohol. I am still asking why our very religious government is mute on sin tax in the Finance Bill and budget. Let's also be open and add that entrepreneurs love taxes. It gives them a chance to increase prices. If taxes rate goes up by five per cent, it's unlikely the prices will go up by only five per cent. But they must be cognisant of how responsive the demand for their good or service is to prices, in economic-speak -how elastic. Let's see what the President says once the Finance Bill lands on his desk. Could he surprise us? My hunch is he is unlikely to do so. The Kenya Kwanza government seems determined to "annoy" us economically. Will the enhanced taxes lead to a new era of najivunia kuwa mKenya (proud to be Kenyan)? Shall we reap the annoyance dividends by 2027 through less debt and faster economic growth espoused by more jobs, higher standards of living and a happier nation? Time will tell.

To tax, or not to tax, that's the big question for State

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