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Why taxes are not about to be reduced

By Leonard Khafafa | September 22nd 2021
A section of Nairobi's skyline [David Njaaga,Standard]

Pundits have, for ages, been warning against the Jubilee administration’s penchant for unsustainable borrowing. Not once, this column has cautioned on the perilous path to debt distress taken with reckless abandon.

The Central Bank of Kenya governor and the Controller of Budget have joined the chorus of those calling for restraint. The latter has asked MPs to “save the country from debts” by reining in Executive spending.

Yet precipitate action, especially the kind that would forestall reliance on onerous public debt perhaps through increased taxation, would be deleterious if taken. To increase or not to increase taxes; condemned if the government does and condemned if it does not.

But the Kenyatta administration cannot be blamed per se for Kenya’s predicament. Indeed, institutions like Parliament meant to provide oversight of the Executive have been strangely silent at times when checks and balances are needful. Take, for instance, the legislative action that advised the imposition of eight per cent value added tax on petroleum products. Despite protestations from citizens, Parliament passed the Bill that has since become law.

Or the tinkering with the country’s debt ceiling to accommodate gaps in expenditure needs against a background of inadequate tax revenues. Lawmakers raised the ceiling from Sh6 trillion to Sh9 trillion in October 2019. They may be prevailed upon to raise it yet again to an indeterminate sum in the near future.

Governments all over the world, Kenya’s included, finance their activities through taxes. However, the bulk of Kenya’s workers are in the informal sector meaning that it is difficult to collect income tax from them. Other taxes like VAT and Excise Duty become the low hanging fruit that the government recourses to and that can raise revenue fairly quickly without fundamental changes to the tax system.

Which is why leading presidential contenders in next year’s national elections are disingenuous when they claim they will lower taxes once elected. Such claims are not feasible in the country’s present environment where the debt to GDP ratio at 68 per cent is at its highest ever. So dire is the situation that the Controller of Budget has revealed that two out of every three shillings collected by the Kenya Revenue Authority goes towards debt service.

The Parliamentary Budget Office has said “it will require serious consideration on debt reorganisation-a mix of debt conversion, suspension and forgiveness” to get the country out of its current predicament. Which should be the focus of any level-headed presidential candidate; how to achieve this without interfering with the country’s standing with international credit rating agencies.

The government is broke and needs all the help it can get in manoeuvering its way around expensive external debt especially to Chinese lenders. That’s the first inconvenient truth. The second is that these are hard times but harder still is the foreseeable future.

It is almost certain that taxes won’t come down despite popular protestations. It is even probable that excise taxes and VAT could go up with the latter approaching the late teens. Politicians who propose otherwise are simply playing to the gallery; purveys of artifice for the sake of getting to State House from where they can blame their predecessors for the mess.

There has been no mea culpa from those responsible for the present financial morass. No one wants to take responsibility. Which is not surprising as Kenyans had been warned about the consequences of their choices. But they must not be like the proverbial dog that returns to its own vomit time and again.

The present cast of political figures have all been responsible for egregious breaches of the social contract. It is time to be circumspect about electoral choices. Perhaps it is time to cast further afield away from fatally flawed characters. This country needs a leader who will extricate it from its current position between the devil and the deep blue sea.

Mr Khafafa is a public policy analyst

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