By CPA Moenga Elvis
The Malaise of the Kenyan Tax Regime
The art of taxation consists in so plucking the goose as to obtain the largest possible number of feathers with the smallest possible amount of hissing ~ Jean-Baptiste Colbert
Growing up, I read a famous fable by Ellen C. Babbitt – ‘The Golden Goose’. The story is told of a woman and her two daughters who were very poor. A Goose who had beautiful golden feathers saw their suffering and offered them one after another of its golden feathers so the mother could sell them, and with the money, she and her daughters could live in comfort.
However, after years of such an arrangement where they lived in relative comfort, the mother hatched a plan to capture the goose and pluck all its feathers at once due to lack of trust. Now the Golden Goose has strange feathers. If his feathers are plucked out against his wish, they no longer remain golden but turn white and are of no more value than chicken-feathers. The new ones that come in are not golden, but plain white.
The ‘I want it all and I want it now’ attitude which leads the mother to pluck all the feathers of the goose, in the hope of greater riches, is what leaves them undone by her own scheme, or as Shakespeare would have it ‘hoist with her own petard’. In similar fashion, there have been attempts to pluck all the feathers of the golden goose by the government. On one hand, you have a citizenry that will by all means want to evade taxes (plucking) and on the other, a government determined to continue to build on a system of crony capitalism which we have been accustomed to as well a lack of austerity while legislating additional taxes.
There is hissing and honking across the land as the government moves to add additional taxes with Kenyans loudly protesting that their feathers are about to be yanked out by the handful.
Cutting through the noise
The Finance Act 2023 has made the dicey relationship between taxpayers and the government explicit. The government has proposed a raft of tax measures that seek to increase the amount of taxation meted including the housing levy, additional tax band on income earned and doubling of VAT on petroleum products among others. These have left a bitter taste in the mouth of taxpayers with ongoing frustrations leading to a wave of mass protests.
With the economy still recovering from the Covid pandemic and additional global shocks such as the Ukraine-Russia war and the contagion effect of the hiking of interest rates in the US by the Fed, there couldn’t be a worse timing to impose additional taxes. Analysts have gone on and on postulating theories such as the Laffer curve and why increasing taxes will not yield increased revenues which is empirically correct. The government in its stead continues to remain cash strapped owing to debt obligations and a significant recurrent expenditure.
The 2023/24 budget is also quite ambitious amounting to a budgeted amount of 3.7 trillion with recurrent expenditure gobbling up 68% (an increase of 1.1 trillion from prior year), development expenditure and county allocation taking up the rest.
I could go on and on with the numbers but I am sure this is well documented. The crux of the matter however is not the Finance Act but more of a trust deficit and lack of sound economic policy.
Is there a way out?
The man Joseph from the good book, the earliest recorded classical economist way before the likes of Adam Smith had his policies spot on and they are still relevant today. During the 7 years of prosperity followed by the 7 years of drought he marshalled the kingdom to set aside a surplus during prosperity in order to reduce the anticipated effects of the upcoming drought (what economists later codified as the business cycle).
The problem with most global economies aside from the debilitating effects of debt is the greed for economic development as opposed to well thought out policies to ensure gradual and consistent growth while reducing the effects of economic downturns (recessions). Now that the drought season is here, the government needs to put aside its ambitious plans for a minute and concentrate on optimizing growth in the real economy by increasing spending in these areas. This will lead to reduced unemployment and a check on rising inflation since supply will have increased to catch up with increased demand.
On trust, it is built with consistency (Lincoln Chafee). The government needs to show in action and deportment that taxes collected are for the benefit of taxpayers and not just a few stakeholders. It should put in place mechanisms for accountability, seal any revenue leakages and optimize government spending in productive sectors. Taxpayers need to realize their destinies are intertwined with the government. Without the government, we have no economy and a state of anarchy will ensue.
All said and done, the government needs feathers (taxes) to sustain the economy. On the flip side, the goose needs to be fed otherwise it will fail to recover its feathers at the right time and eventually die, leading to a state of reliance and servitude to other nations.
PS: The way taxes are, you might as well marry for love ~ Joe E. Lewis
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