Government must tame appetite for more taxes

Friday, September 24th, 2021 00:00 |
National Treasury. Photo/File

That the National Treasury is under intense pressure to raise revenue is an open secret.

Latest data indicates that the external debt, inclusive of interests, stand at Sh6 trillion—equivalent to two years of our national budget. 

That is not an enviable position to be in. The scenario notwithstanding, it is important for the Treasury to strike a balance between what it needs to raise and how much it is asking Kenya Revenue Authority to demand from taxpayers.

Unless this is done, we run the risk of burdening citizens with heavy taxation.

Wananchi — just like government—are already feeling the effects of Covid-19 on the economy, especially because many workers have lost jobs.

For Treasury, this means income taxes that these workers used to pay has dried up.

This situation has been made worse by drought, which has hit various parts of the country, further stretching household expenses as employed relatives support kin who are facing hunger.

As though that were not enough, earlier this month, the eight per cent Value Added Tax on fuel kicked in, sparking uproar, including among MPs who passed the bill that paved the way for the tax.

High cost of fuel has a ripple effect on all sectors of the economy. Farms and factories need fuel to keep running, electricity generators need it too to produce power, transport companies need it to keep all economic actors on the move and households need it for cooking and lighting.

As such, any slight increase in fuel costs affects everyone, with poor families being hit hardest. 

Consider the price of kerosene, which recorded the highest jump when new prices were announced mid-month.

With the adjustment, poor families will not only have bigger challenges affording food, but even when they get it, they will still have to figure out how to prepare it.

Do not be surprised, therefore, to see more people carting firewood in urban areas. Already, there has been an increase in the number of outlets selling firewood.

This tells you even people who have own trees are feeling the need to cut them down and sell wood to raise money.

To ask them to pay higher taxes on basic goods and services, will, without a doubt stretch their limits.

Already, Kenyans pay disproportionately high taxes given that virtually all products—including schoolbooks—are taxed.

This is in addition to direct taxes citizens pay as income or corporate tax, not to mention the minimum tax which a court this week declared unconstitutional.

Under the minimum tax regime, small businesses were required to pay KRA one per cent of their revenues irrespective of whether they were profitable or not.

Considering small businesses also pay various levies to county governments—in addition to VAT on all purchases—asking them to again pay tax on revenue amounted to stretching taxation too far.

But then, government needs that money to pay off creditors, and now as a country, we are spending over half of all tax collected to service debt.

A large proportion of that debt has arisen from large scale legacy projects, which, though beneficial in the long run, are stretching national cashflow in the short term, thus forcing wananchi to pay more in taxes.

This is neither advisable nor sustainable. If not checked, it could have other adverse consequences considering that Kenyans will be going into an election in less than a year.

Already, politicians, including those in the establishment, are using taxation as a campaign issue.

Something else needs to happen. Those found guilty of high-level corruption—like public officials and their private sector cohorts who caused loss of Sh7.8 billion from Kemsa—should be surcharged in addition to being fined or jailed.

Such acts of restitution will not only discourage theft of tax money but also inspire confidence in taxpayers.

Although government has adopted the line that citizens should pay taxes irrespective of whether their money is being siphoned, this argument can no longer hold.

Citizens need to see accountability on the part of public officials. They also need to see those found guilty being punished appropriately and all wealth they have amassed irregularly seized. —The writer is a Partner and Head of Content at House of Romford —[email protected]

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