Policy elites blind to tax burden

The assumption is that if a country wants to become developed, it must take steps to improve and enhance its tax effort statistics and numbers.

Photo credit: File | Pool

In President William Ruto’s view, the notion that Kenyans are overtaxed is a big myth. He has repeatedly made this claim in several press interviews in recent weeks.

It seems to me that the main piece of data he relies on to buttress his stand on the vexed debate on whether or not the citizens and businesses are overtaxed is that arcane concept and piece of statistics referred to in economics textbooks as ‘tax effort’— that measures tax revenue as a percentage of gross domestic product (GDP).

The argument the President has been advancing publicly in the media interviews lately flows as follows.

We need to spend more on infrastructure, and hence we need to increase tax effort.

The origin of the thinking is the contemporary Washington Consensus orthodoxy that holds that a government of a developing country needs to be able to raise revenues of more than 20 percent of GDP to give an average standard of services to its citizens.

The assumption is that if a country wants to become developed, it must take steps to improve and enhance its tax effort statistics and numbers.

We have uncritically swallowed, root and branch, the advice from the International Monetary Fund that because we collect less than 20 percent of GDP in taxes, we still have a much bigger headroom to collect much more and to introduce as many new taxes as we wish.

Tutelage by the IMF is why men in power are unable to appreciate and see that we are gradually descending to a regime of predatory taxation.

From the ivory tower, the policy elites are unable to see nor gauge the extent to which ordinary citizens and businesses in this economy are overtaxed.

The IMF-sponsored regime of high taxes and massive elimination of tax exemptions and incentives are taking us to a place where we will soon discover that the impact on effort and evasion is becoming counterproductive.

We are taking a risk by uncritically swallowing what the IMF is telling us while ignoring the fact that the GDP and ‘tax effort’ numbers and statistics we are being advised to base our decision on the massive tax increases have major data quality issues.

I recently came across a research paper by a fairly authoritative think tank where official GDP data for Kenya has been awarded the quality rating of D-, was ranked 98th on a global scale, and 20th among African countries.

Is it not an outrage that we are about to impose massive tax increases on citizens based on ‘tax effort’ and GDP numbers and statistics that are unreliable? We all know that we are flying blind when it comes to national output statistics.

It is like the policy elite has not realised the problem that reliance on exaggerated GDP forecasts and numbers has been causing to our planners.

Exaggerated GDP forecasts lead to exaggerated revenue projections and, unachievable budget deficit targets.

It is how you end up with multiple supplementary budgets and perennial complaints by county governments about delays of Exchequers releases by the Treasury.

Unachievable GDP numbers and tax effort targets are the reason why the government is always bursting its domestic borrowing requirements. It is why even after we introduced huge tax increases last year, Kenya Revenue Authority did not meet its targets.

I see it differently. If you asked me to tell you whether Kenyans are overtaxed or not, I would not refer you to arcane statistics on GDP and the ‘tax effort’ produced by that grossly underfunded and inefficient bureaucracy known as the Kenya National Bureau of Statistics.

I will refer you to look at how taxes have impacted your monthly shopping bill, how petroleum taxes have impacted your commuter fares bill and how the increases in consumption taxes on the prices of bread, cooking oil and flour have hit your pockets.

You suddenly realise that sending money to your parents living in the village by M-Pesa has become prohibitively expensive.

How taxes have impacted on your electricity bill and how you can’t get joy with your children in your house because you are constantly shouting at them to switch off the gadgets in the house because your electricity bill is loaded with multiple taxes.

If you want to gauge whether Kenyan citizens are overtaxed or not, conduct frequently household surveys to assess the impact of taxes on the cost of living for the average family.

Track the impact of taxes on commonly bought items for a household of a base year.

The writer is a former managing editor of The EastAfrican.

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