- Only three percent of Kenyans are in formal employment paying income taxes, and a similar and perhaps even smaller percentage of businesses, meaning there is remarkably little direct taxation to be had for all those services.
- Yet, as we chase indirect taxation, the proportion of our populace who buy a washing machine with VAT on it, is tiny.
- Instead, across our whole society, the mega-companies, such as Safaricom, have been built on spend at the base of the income pyramid, in fact, throughout the pyramid, from top to bottom.
Will Kenya remain forever hung on its tax dilemma, or is there a way out and forward for a nation where hardly anyone pays direct taxes, and the government is now chasing a wider and wider array of indirect taxes? It’s a problem that sits at the heart of nationhood.
At first base, how much do we need and want public goods and services? What do we get for all that public spending — roads, schools, hospitals, border security, ports, trains and occasionally agricultural extension? The facts are that despite all the stealing we do get some genuine services from our public sector.
Yet our whole social contract, whereby we pay taxes for shared and collective public goods, is in a terrible state of repair.
The first base is our destroyed trust in the spending. For the mammoth figures that the Public Accounts Committee declare each year as lost, unaccounted for and untraceable, leaves me wide-eyed: how can any amount go out of a government account without due process, showing what it’s for?
Who are these signatories who authorise all these payments that the government cannot account for? And why are they still in public jobs?
Genuinely, I have never understood this. For sure, if the accounts committee can spot places where politicians have driven inflated pricing that encompasses kickbacks, then why can’t the person authorising the payment?
It doesn’t take a rocket scientist to achieve reference pricing, and at least curb the outflow. That would force suppliers to stick with the going prices and still supply a political kickback, which might be a big disincentive — who wants a public contract at a loss that they are genuinely subsiding? And, for the rest of us, it would end the triple price for everything, from hospital sugar to school computers.
Likewise, if my life depended on ensuring payments only went out for real projects and not fictitious ones, I could manage to create a checking system for that, without any more than the bare wits borne of being the daughter of school teachers.
But while administrative failure and leakage see us receive far fewer services for our money, our other tax contract problem is 97 percent of ourselves.
Only three percent of Kenyans are in formal employment paying income taxes, and a similar and perhaps even smaller percentage of businesses, meaning there is remarkably little direct taxation to be had for all those services.
Yet, as we chase indirect taxation, the proportion of our populace who buy a washing machine with VAT on it, is tiny.
Instead, across our whole society, the mega-companies, such as Safaricom, have been built on spend at the base of the income pyramid, in fact, throughout the pyramid, from top to bottom.
And, in that, phones and Internet have become a part of the lives and spending of all but our very, very poorest, making them a magnet for governments seeking a way around inadequate direct taxation.
For some of those new taxes, however, I am finding it hard to understand how enforcement will be any different to direct taxation — a tax on e-learning, people say? For those who declare. Will influencers pay taxes?
Well, I guess we have two kinds of influencers. One kind fills out their self assessments, pays withholding tax, and will surely declare for digital tax too. But the ones who don’t self assess, they won’t pay digital tax either.
And so the cycle goes on. The few payers, and the mass of non-payers. Which means maybe our attention should now turn to getting more people into the payers’ camp.
Could we not introduce a 50 percent VAT or indirect tax that anyone with a self-assessment tax certificate was exempt from, and anyone else had to pay? No HELB to non-self-assessors? No NHIF or public health services to non-self-assessors? No school places to non-self-assessors?
If we really want to end this mess, we need to get serious, so only the formal sector that pays get public services. The poor can self-assess, even at close to zero. But it’s time everyone came in, to this public, state contract.