Kenyans have no more room for extra taxes

A candlelight on the table illuminates a placard of the Housing tax levy, during the 13th Commemoration of Katiba Day at Mazingira Institute.[Edward Kiplimo, Standard]

During his last term in office, President Uhuru Kenyatta’s administration offered up to Sh620 billion in tax waivers to Kenyan and foreign firms.

It is worth recalling this figure not as a deflection of blame to the previous administration for our current troubles, but a reminder to President William Ruto to avoid the same level of insouciance in the management of our public finances.

The fact of the matter is not all those waivers were justified. Many firms were exempted from paying taxes simply because the individuals behind them were politically connected. 

It is unfathomable that the government would be leaving this much in tax revenue on the table, even as it went on a debt binge that now threatens to make the government insolvent.

Despite the government’s assurances that we will not default on our sovereign debt – a big chunk of which is due by June 24, 2024 – the rating agencies have issued a negative outlook warning about our finances.

Eager to prove that it is fiscally responsible, the government has resorted to what amounts to a shakedown – from embarrassing behaviour at the arrivals terminal at the Jomo Kenyatta International Airport to workers’ pay slips.

Tax exemptions for the wealthy amount to upward redistribution. When the government foregoes hundreds of billions in taxes, it is Kenyan households that are left holding the bag.

And right now Kenyan households are operating with little slack in their finances. Food already accounts for nearly 40 per cent of household spending, with transportation (14.2 per cent) and housing (13.9 per cent) rounding up the top three expense categories. Recreational spending amounts to less than 6 per cent of household expenditures, with this figure likely reflective of spending levels at the top end of the income distribution.

This means each additional levy, tax, or increase in fuel prices will eat into households’ essential expenditures.

As it tightens the screws on tax administration, the government should understand that tax morale (and compliance) is a function of the fiscal contract between citizens and the state.

Taxation without evidence of benefits will drive ever more Kenyans to evade taxes. Furthermore, the government should make it clear that everyone is bearing their fair share (including the wealthy and politically connected).

Finally, the government should be doing everything in its power to push the share of household incomes going to food to less than 15 per cent.

The writer is an Associate Professor at Georgetown University