Taxes, debt and scandals all in one: This is a hard place to be a taxpayer

Kenya Revenue Authority (KRA) offices, Times Tower Building, Nairobi. [File, Standard] The political elite of the Kenya Kwanza administration have had their way with the Finance and Appropriation Bills of 2023 despite the public mood. The two bills are now headed to become law to govern government spending and revenue-raising measures for the fiscal year 2023/24. The course of action left for the taxpayers now is to tighten their belts to shield the government burdens. Unfortunately, as Members of Parliament argued for a case of the electorate to bear the presumably temporary pain before things get better, the media has been running an expose of potentially billions of taxpayer's money lost in the administration's interventions to tame the high cost of living. At the epicentre of this potential heist is the little-known Kenya National Trading Corporation. Ten months ago, very few Kenyans knew of the existence of this agency. It was brought to the limelight by a short statement from the cabinet office on November 10, 2022, conferring the heavy responsibility of administrating key programmes like the fertilizer subsidy and importation of duty-free food to bring down the cost of living. Access to credit The statement implied the agency would be facilitated to access a line of credit to the tune of at least Sh25 billion from 'government approved commercial banks' over and above handling direct budgetary allocations towards these interventions. Given these facts, the natural question that comes to mind is what capacity did this agency have to deserve such a huge responsibility? On its official website, it primes itself as the default government procurement and mediation agency to control consumer prices of basic commodities in the country. To effectively handle this, the 100 per cent government-owned company prides itself on owning only four 28-tonne trailers, one 10-tonne lorry and nine warehouses in eight cities/towns, including its headquarters on Nanyuki Road in the Industrial Area of Nairobi. Curiously, I could not find any information on the Company's Board of Directors on the website as of the date of this article. Furthermore, a couple of key management staff positions are held in an acting capacity. Overall, the website yields very little details on the capacity and experience of the company. For good students of the country's mega scandals, this is keen to the events that preceded the NYS I & II heists. Could we be dealing with the same actors here? Three fundamental questions arise from this: One, how would a company be capable of handling at least Sh25 billion turnovers look like? What oversight and governance structures would it have? Two, what informed the choice of such an obscure agency to manage and administrate such a huge responsibility and the accompanying public resources? Three, what should the taxpayer make of this when on the one hand he is been cajoled to shield the heavy burden of public debt and government programs, while on the other hand mandated public agencies are bleeding the very taxes to potentially well-connected individuals at lightning speed? Morality of taxation The events driving public discourse this past week take us back to the old-age debate on the moriarty of taxes. Encyclopedia.com argues that the moriarty of taxes can be traced to the virtue of the theory of commutative justice. This theory is based on a presumed contract or pact between an individual and the state. Tax is therefore the price paid by the citizen for the services rendered to him or for him by the state. Richard Baron in an article on the ethics of taxation published in the Philosophy Now Magazine offers a candid case on how to view taxes through the application of political philosophy and approach to ethics. From this ideological approach, the support for just taxes or opposition to unjust high taxes can be argued from three perspectives of utilitarianism, deontology and virtue ethics. Achieving happiness Utilitarianism support for just taxes leans on the proposition towards achieving the greatest happiness across the population. Economists would view 'happiness' through the lenses of satisfaction of one's desires and thus support the maximum satisfaction of desires for the majority of the populace. Thus, if just taxes ensure public goods and services are available to allow everyone to have a decent life and available resources are distributed widely enough for all or most people to enjoy them, then paying one's taxes would be the noble thing to do. This is an appeal that the president and the pro-Finance bill 2023 advocates have tried to advance in the public fora. In good economic environments, taxation and government spending help achieve redistribution for everybody to achieve something. But that is as far as it goes. In unfair high tax regimes, the taxes become an impediment and thus reduce investments and incentives to work. This makes it hard to generate sufficient total resources available for redistribution. In effect, the pie becomes too small to share out. That calls for economists to advice on how to balance interest to get the most productive results for both the individual taxpayer and the state. This column has endevoured, to the best effort possible in the circumstances, to render such unsolicited advice to the KK policymakers, bureaucratic and political elites. Like Pilate of the old, we wash our hands on the matters of Finance Bill 2023 and now wait for the evidential indicators. Deontology views the ethics of taxation based on the idea of absolute duty. From the anti-taxation perspective, this view proposes that people should not pay taxes because it is a forcible transfer of property away from taxpayers. But on the other hand, the use of social resources should be paid for. Otherwise, the use of public goods and services without paying for them would be seen as theft. Thus if we use a public road or go to a public school or hospital, then we should pay a tax for it. The limitation of this view is that it offers uncertain conclusions. Moderate taxes Lastly, the virtuous view of taxation argues that virtues are more likely to be exercised if tax rates are moderate than if they are high. Thus, financial incentives encourage people to use their talents in full while high taxes dampen down the incentives by reducing take-home pay. The outcome here would be the achievement of independence of one earning their needs rather than depending on the subsidies of others. Lower taxes make independence easily achievable. Liam Murphy and Thomas Nagel in The Myth of Ownership: Taxes and Justice (2002) argue that the presence of the state gives stability that allows high income. Therefore, in a society without government, there would be no security of property and no system of enforceable contracts among others. In such a state, the question of the redistributive power of taxes shifts to where no wealth exists at all. Nonetheless, this argument does not legitimize high levels of taxes and a big state. A minimum effective state can easily provide the stability necessary to generate wealth. Evasion In conclusion, for taxes to be considered legitimate, consideration must be given to the consequences of the overall level of taxes. While not sounding alarmist, the passage of unpopular taxes may necessitate an increase in tax evasion. There already exists a sufficiently large corruption network among the tax authority to fuel this. Secondly, the tax administration costs for some of the tax classes' be too high to make them unproductive from a cost-benefit analysis perspective. Finally, the majority of taxpayers may enhance their tax planning schemes to avoid taxes that they would have otherwise paid if they considered the taxes just. Ultimately, time will tell.

Taxes, debt and scandals all in one: This is a hard place to be a taxpayer

Get Full Access for Ksh299/Week.

Related Topics

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

DIGGER JOBS

Digger Motors

Digger Real Estate

Taxes, debt and scandals all in one: This is a hard place to be a taxpayer

Get Full Access for Ksh299/Week.

Related Topics

Trending Now

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS