|
F
|
rom the Bible, there is recounted the tale of some hostile
inquisitors who sought to box in Jesus, the much heralded ‘King of the Jews’
into an explicitly perilous position. Their grouse was on whether his
compatriots should continue to pay taxes to the Roman Government or simply
withhold it till they have their own dominion. They anticipated a scenario
where Jesus would take an adversarial stand against the norm and therein find a
suitable excuse to hand him over to the Governor of Judea, Pontius Pilate for
treason. Thinking of him an ordinary man, they attempted to massage his ego by
praising his integrity, altruism, sense of justice and unwavering adherence to
virtue. Having tenderized their prey, the Pharisees and Sadducees took their
chance to drop the gauntlet and pounce. He preceded his defense by dubbing them
“hypocrites” and “sons of the serpent.” Then with the much vaunted slipperiness
of an eel he asked to be shown a Roman coin. He asked whose head and
inscription featured prominently on it and the answer immediately rang back,
“Caesar!” In a sagacious response he told them to render onto Caesar his due
and onto the Lord what is God’s. He left them with the double whammy of being
both in awe and satisfaction as they went on their way.
But the
real question they forgot to ask is how much should we pay to Caesar?
A few weeks ago there were acrimonious scenes in the
National Assembly of Kenya as the President in typical African strongman style
buttressed the passing of the Supplementary budget and appropriation bill in
consort with the majority and minority leaders, afterwards rushing to assent
the act into law. This was in spite of the rare scenes of parliamentarians
united in a gesture transcending party lines, proffering copious outpouring of
hue and cry against the expropriationate measure to levy 8% taxation on fuel.
They had in one voice cried “Nay!” when the motion of intent to levy the
percentage of tax was tabled before the house. Despite that deafening roar, the
“ayes” had their way. As the Social Media generation would put it, “Handshake
Things ™!” Naturally, with politicians and their chameleonistic nature it is
rather difficult to sift among the wheat and chaff for their true intentions.
As they say, Politics is a game where loyalties are transient while interests
remain supreme albeit common! My brief here today is not to wade the murky
waters if not the clandestine interstices of what is fact or fiction but to
rather scientifically and inextricably extrapolate the graphical hanging lines
that are the potential fall-out from the raising of taxation on essential goods
in the backdrop of a financial downturn.
Kenya is regionally renowned as the land that has fiercely
embraced capitalism to such an extent that we have mangled up whatever would
have been made of its human face! The repercussions are clear for all to see.
For instance, the same brand of vehicle is to be imported by our landlocked
neighbours, Uganda through our Kenyan Port in Mombasa. After going through the
requisite statutory licensing it is conveyed onwards to the Malaba border,
carted 1000 Kilometres into Kampala. The shock does not lie in this long drawn
out transportation modalities but in the price differences with the same brand
in a Kenyan Motor vehicle showroom. Many a plastic surgeon have had to thank
their good fortune from the burgeoning number of reconstructive surgeries
performed on Kenyans collecting their jaws from the floor after information on
prices filters through! This is of course in jest. The Kenyan price is markedly
higher. But not quite, as the cost of doing business is impossibly high in
Kenya compared to our regional neighbours and even some continental superpowers.
However, let us revert to microeconomics. A few years ago, as the Professor
teaching us Engineering economics harped on about taxation we were merely being
lulled into slumber not paying much credence to his ‘voice crying out in the wilderness’ brand of teaching. He started
by terming Taxation as a ‘Pecuniary’ imposition by the government on its
citizenry. Then he added terms like ‘ad-valorem’ when many of us had been left still
grappling with the meaning of the P-word! Today, we wish we were more attentive.
Nevertheless, what did not pass us was the Principle of Taxation stating, “High
Income taxes rather than bolstering enterprise only work to discourage
production while killing the morale of employees. A good tax system should be
at a rate concomitant with promoting economic activity.” In the same token, it
is no wonder that our Litigator-in-Chief, Okiya Omtata went to court asking for
a reinstatement of the moribund ‘Moi-Day’ and in appreciation of public
sentiment the High Court Judge assented. This was irrevocably supposed to be an
antiquated relic of a time simply worth forgetting, but if the people want a
holiday who was he to refuse? Even he may have felt the exertion of working so
hard merely to raise more taxes for the government. Shouldn’t there be dignity
in doing work and appreciation of the role of taxes in nation building? How is
industrialization to be achieved when people celebrate imposed holidays more
than economic development?
Widening
of the tax-base has variously been opined as one of the ways to
raise more taxes. What I mean is being more innovative with our tax regime.
Some have even opined that in view of the widely popular yet covert use of marijuana it should be legalized and
join the tax-generating bracket. For this one the jury is still out. However in
keeping with the letter and spirit of this post, we must not tax so much as to
drown enterprises under the mire of double taxation. It is a well-understood
fact that agriculture and the Small & Middle Holdings are the essential pillars
holding up our economy. As such rather than over-taxing the Government
aficionados at the treasury should look at means to subsidize instead of
exacerbating what is already being levied on these two facets of society. Many
SMEs and Start-ups exist poised on the periphery of survival. A minuscule shove
and they are off the cliff of actuality. Many are the heart-rending stories of
the proverbial young man running his ‘kibandaski’ being on the verge of
recompense of his capital investment loan and finally breaking even. He is just
one installment repayment from completing the loan when the 8% VAT starts
getting levied on fuel inflating the cost of all his factors of production,
some of which he previously got for free. The situation becomes so untenable
that he is unable to meet his standing–order obligations and his business is
repossessed by the affected financial institution and auctioneers. I cannot
fathom a situation more soul-sapping than someone being on the path to
financial independence in a thriving enterprise being suddenly robbed of all the
fruits of his toil, thrown back into the simmering cauldron that is the
millions of job-seekers scavenging for mere sustenance. From prosperity one is
knocked back into the rat-race for survival. Reminds me of the high school
Short Story by Ezekiel Mphalele, ‘Man must live.’ Men will accuse, castigate,
deride and even ridicule you. They will accuse you of insubordination and a
lack of respect for them in your confidence, they will accuse you of dishonest
dealing in business. They could deny all they want but in the
fullness of time one is compelled to wake up sooner rather than later to the
hard, cold and indisputable reality that man must live!
Our tax
regime is simply too complicated! Among the Cardinal Principles
of Taxation is one of being explicit and simple. Many people are just ordinary
folk, law-abiding citizens, with simple ambitions to raise their children,
build a small house and basically enjoy life. For them a simple tax regime is
exactly what the doctor ordered. Not only will it be easier to comprehend and
hence comply with their liability, it will also reduce administrative costs of revenue
collection. This cannot be made any
easier by double taxation. When the same enterprise pays for business permits
but is still charged KShs. 50 daily by county officials as operating fee
something will have to give. Costs of doing business in terms of Capital and
Operating expenditure being what they are it is acridly immoral to add to the
same and still preach the gospel of economic emancipation for those affected.
Some evade tax by default not by design. This is merely because they do not
know what is to be taxed and what isn’t. But instead of enlightenment they are usually
harshly admonished, condescendingly being reminded that their ignorance is no
defence and charged huge penalties in fines for non-compliance. Civic education
on tax implications is lacking despite politicians eternally preaching to us the
self-serving gospel of an acute shortage of nincompoops in Kenya, majorly
buttressing home the fact that any education will not only be appreciated but rapidly
internalized and put into proper use. There are cases of systems failure on the
i-tax portal where you register for a specific tax obligation, the ostensibly
automated system gives you an acknowledgement, even printing a registration certificate,
contented you go home. Come the appointed time to file returns you in great
horror and consternation realize the obligation you enlisted for isn’t in the
list of those to honour! Optimistically, in your considered opinion decide that
in filing the others, the spirit will be deemed willing concerning the hidden
obligation and the gesture appreciated by the Kenya Revenue Authority. Days
later, you receive a spine-tingling notification. You owe the government a fine
of 20,000/- for failing to file returns in good time and the system has
conveniently rather miraculously activated the V.A.T obligation such that it is
now visible possibly from Pluto! I am at liberty to confirm neither the
occurrence nor nullity of this story. If true, isn’t this the quintessential
manifestation of State robbery against its tax-paying cadre?
Retrogressive
Tax regime. A progressive tax regime is one developed in
the understanding that taxation is meant to enhance social welfare. This is the
Principle of Proportionate application. To this end, it is expected to
logically levy more upon people who can remit more. The Rich are expected to
have a higher proportion of their earnings taxed compared to the poor. However,
is that the case in Kenya? Much income is forgone simply because the government
doesn’t have an inkling of cognizance how to tax it. The informal and the real-estate
sectors are two that are minting new millionaires with every passing day. But
are they included in the taxation net? We find ourselves with a government that
was elected majorly on the promise of their Big 4 agenda. They vowed to provide
Food Security, affordable housing, Revive Manufacturing and universally
affordable Healthcare. Let’s not forget our strife for the attainment of SDG’s
and Vision 2030. How will these be met in the backdrop of unmet fiscal
expectations? Even the free primary education, among the keystone projects of
the previous regime will be pilfered into ashes when taxation is not channeled
back into it commensurately. Health care will no doubt be left to mortification
if inputs and supplies are disproportionately taxed.
What do
we stand to lose by taxation of the most essential factors of production?
We
will no longer be able to produce globally competitive goods by the parameter
of price which will be to our detriment as a nation. Who
will want to buy commodities at a higher price point when they can get cheaper
varieties serving the same purpose elsewhere?
We
will suffer brain drain. The most skilled and
commercially adroit sectors of our population will either move to other
countries themselves or take their enterprises with them. There are already
many innovative and useful former countrymen manning the Silicon Valley in
California in the United States and elsewhere. Can we risk to lose any more? If
we do how will that bode for our future prospects of development? But the usual
policy response in Kenya today is that there are enough Chinese to address
that! Or perhaps Kenyans are born every day so we are unlikely to ever lack intuitive
manpower. I rest my case.
Killing
foreign investment. Economics 101 course furnishes each
student with the Cardinal Principle, ‘reduce Expenses to boost Profit margins.’
If the cost of electricity, licensing, legal fees, overheads and raw materials
is lower in Malawi compared to say Kenya; what moral authority and personal
obligation do I have as a foreign investor to have my potential revenues
swallowed by the behemoth that is that nation without a policy convivial for
investment? An efficient tax system will score a nation competitive edge
against her competitors and win more investment to her side. Needless to say,
more investment equals more employment that ultimately translates to a bigger
tax base.
Increased
dependency ratios. I have earlier in this post spoken about
the fragile state of many fledgling enterprises. Any one is more vulnerable at
infancy as compared to any other time of their development. So much has already
been gushed about many start-up firms not living long enough to celebrate their
3rd birthday. When these firms collapse many youth will ultimately
rush back to their ageing parents’ households, go into alcohol and drug abuse
and there-in re-introduce dependency on the same parents who had thought would
be free of them after providing sound education and even some start-up capital
for their commercial ventures when they moved out of home. How is a tax-paying
cadre to be widened when so many who would erstwhile have been gainfully
engaged find themselves mired in unemployment and consequent poverty brooked merely
by an unyielding taxation regime?
The
very existence of taxation is supposed to be overall wealth redistribution and
provision of a safety-net to cushion low income earners while building them up
to the required stable level of financial health. This
will not be possible when you tax even the very food they eat and basic factors
of production like fuel, stationery, airtime and even internet bundles.
What
became of the sin tax? I see no difficulty in taxing specific
luxury goods for instance alcoholic drinks like Johnny Walker, VAT65 and the
Jameson affordable
only by the most affluent groups in society. Heavy duty is to be imposed on
fuel guzzlers as compared to the eco-friendly variants of conveyance. Also tax
betting and gambling firms. Some will accuse me of enforcing punishment for
success but far from it. This besides influencing behavioural change will also
be a sure bet in raising revenue that is much needed so that we are not forced
to revert to taxing kerosene and maize flour. Also with proper collection we
could finance sectors like Research and Development which is a precursor to any
expansionist eventuality.
Many will argue that taxation uptake for meaningful use
could be a panacea to all the over-taxation we see. How is this possible? Cut
out that one-third lost to corruption every financial year. Additionally shed
off inefficient government bureaucracy, complex taxation regulations and poorly
structured policy directions; innovate more, provide populace financial
education, resurrect our work ethic, cap inflation, stabilize our politics and
finally have foreign currency controls. Overtaxing obligatory factors of
production will extinguish any remaining embers that currently survive to
steam-roll economic emancipation of our people from crippling poverty.
No comments:
Post a Comment