The mood is ugly inside Times Tower, the headquarters of the Kenya Revenue Authority, this month. Colleagues have been fired, targets have been set, and tax collection is to rise, no matter what.
Yet Kenya has always had tax collection challenges. First off, the informal sector accounts for a third of GDP and three-quarters of employment. And while the term ‘informal’ may cast some legitimate glow over this non-contributing sector, the reality is that these operations are illegal.
They are not registered, do not pay taxes, or contribute to public spending. For sure, the 2015 Tax Procedures Act made it a Sh100,000 offence not to register for tax within 30 days of becoming liable. But no one cares in our informal sector, and no one is enforcing that.
Yet, without finding the missing three quarters of our employees, the existing tax base is tiny. Just five per cent of Kenyans, being 2.6 million people, pay personal income tax, and only 310,000 companies. That’s it. The sum and the total covering and collecting the country’s public sector finance.
For many countries, those figures would make widening the tax net a top priority: time to make the informal sector formal. Enter some smart government with a mini-tax as a starter point for smaller and micro businesses, designed to woo millions of new payers.
But, in Kenya, the super-genius, whizz recipe of ‘do or die’ is to turn Times Tower into a Gulag, recruiting youngsters and showing them how to find tax payers’ bank details and batch out thousands of instructions a week to freeze their accounts.
For, as it is, more than half of those 310,000 businesses are running late payments on their tax. They are not tax evaders. Those companies have declared their tax liability each month. But they are in payment arrears — on their declared tax liabilities.
Indeed, tax evasion, just to counter the messages from the KRA’s new PR agency, is not the same as a tax dispute, tax avoidance, or tax arrears.
But perhaps we can only hope, as this witch-hunt accelerates, that the agency in question — and the journalists it feeds — can stretch to a Google search on what tax evasion means before they run the next story and headline.
For we may now be deporting directors in unadjudicated tax disputes, but the point about a tax dispute is that at least one party believes it is not a tax liability. It isn’t hidden, or evaded, or illegal, it’s disputed; I have experienced it.
In 2009, my company made a loss, accounted for, audited, and submitted. However, the KRA, despite more than six letters from our auditors, has never recorded that loss, and has chased us ever since for 2010 profit tax. The law is, when you are in losses, you have no profits to pay taxes on. But no matter.
Indeed, we all have issues like that, almost all of we 310,000. I have asked many of my fellow business owners whether things have improved under iTax, but odd amounts are still springing up all over, errors galore, and there isn’t the smallest hope of getting them addressed.
So, tax in Kenya, when you choose to be ‘formal’ and observe the law, is like an electricity bill I once got from Kenya Power for one month in my home for Sh250,000. It was impossible. But pay it we had to: for disputing wrong sums makes us defaulters.
Of course, there isn’t a single chance that the impact by next year of all this ‘enforcement’, even on disputed amounts, will be higher tax revenue.
When you only have 310,000 organisations in play, forcing the closure of even 3,000 who were paying tax, even if they had arrears, will reduce your tax take by one percent and then two percent. It’s the approach of a pastoralist. Eat all the grass, and move on. And it’s an end game.
So, sorry to the companies now being closed. These are ugly times.
And our public finance solution is to close our 310,000 corporate tax payers if we have to: so that we get more tax.