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Personal Finance

Time to cast tax net wider to rope in new ‘sins’

If the government keeps on increasing taxes on alcohol and cigarettes, consumers will devise new ways of continuing with the sin at cheaper costs.
If the government keeps on increasing taxes on alcohol and cigarettes, consumers will devise new ways of continuing with the sin at cheaper costs.  

I have been listening to reactions on the recent Budget and one thing that stands out is how different people look at issues. One of the popular themes is the “sin tax”.

Evidence from the recent economic depression shows that despite the difficult times, little luxuries are never compromised. In war torn regions where a lot of economic activities are frustrated, sin businesses such as cigarettes and alcohol selling still thrive.

As many Kenyans tighten their belts in this harsh economy, most are not likely to reduce their ‘sin’ spending as much as they may cut on other household budgets. I am of the view that the multiplier effect of extensively high sin taxes can actually cause malnutrition.

This is because when those targeted end up committing the sins anyway, the kitchen budget will be affected negatively. If the taxes are too prohibitive and the costs of sinning become unbearable, people will become unhappy and this will affect the national productivity.

A successful economy like the US is modelled on pursuit of happiness and this is the basis of the American Constitution. Since our new constitution has a lot of similarities with the American one, the State owes the people happiness as this is one of the best ways to inspire the citizens.
Lack of happiness can lead to civil unrest as the citizens’ protest against the increasing costs of living. A case in point is Yemen where the protesting youth were not as effective compared to other countries since they had to take a break to go and chew miraa (Khat).

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The other problem relates to the coping mechanisms, Kenyans are some of the most resilient people in the world. In a case where illicit brews led to blindness, those affected were reported to have said that, “even if you switch of the lights we will continue to drink.” Little did they know that they had gone blind. This means that people will do anything to sin. This might create a do it yourself market which the government may not be able to tax.

Consider ‘kiraiko’ a self-made tobacco stick. Soon people will start planting a few stems of tobacco in their backyard alongside vegetables and revenues from duty on cigarettes will take a downward trend when this gains popularity.

Home brewers will also crop up to serve the needs of the overtaxed sinners. The government will have to allocate more funds to the policing of such initiatives. I read of a case in Europe where truck drivers were using used cooking oil instead of diesel, the fumes from the trucks smelt like that of hot mandazi, they were considered to be evaders of road taxes. Such is the extent tax payers can go to if some of the levies are too high.

Behaving badly

The other practice that is not sustainable is that of traders increasing their prices.

This will result to similar coping behaviour as described above whereby those seeking happiness may develop new consumption behaviours to avoid being overcharged.

One such behaviour is termed ‘topping up’, where one drinks cheap liquor early in the night and then he goes to an up market place to ‘top up’ with very few Tuskers.

There is need to understand psychological pricing in order not to price themselves out of the market or lose market share. Even if some goods don’t follow the normal demand curve, their price is not totally inelastic.

Outrageous ideas

I came across a group of men that is planning to form such a group in the name of MAWE an acronym for Men Against Weaves. According to the men, they were disappointed that the Finance minister did not increase the duty on weaves by 100 per cent. They argued that weaves are not ‘environmentally friendly’ and therefore they should be taxed heavily.

In the future, budget makers will have to consider new sins to tax as even the church keeps reviewing the list of sins to reflect current realities.

The writer is the marketing director of SBO Research. E-mail: [email protected]

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