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Rope in the wealthy tax cheats in informal sector to ease workers pain

tax (4)

Tax expenditures refer to revenues forgone by the government through granting preferential treatment to certain incomes or groups of people. FILE PHOTO | POOL

I am troubled about taxes. For I see, now, we are set along the same inequitable path, without the political will to address it. Yet this game of the few paying for everyone is crippling for our development.

The problem begins with tax legitimacy. How many Kenyans believe in complying with tax regulations? Well, according to a survey in 2021 by Afrobarometer, 58 per cent do, although this is far from evenly spread.

Low spots are Nairobi and the former Central Province, where only a minority support tax compliance.

Even so, there is a nationwide gulf between the 58 per cent who say they support tax compliance, and the 7.5 percent of Kenyans actually registered to pay income tax.

Yet, tackling the breadth of our informal sector has sat forever unaddressed. This isn’t a matter of poverty.

Read: How to tax the mega-rich Kenyans with little pain

Where Financial Sector Deepening and the KNBS reported on high earners, they found that three-quarters of Kenyans earning over Sh100,000 a month were in the informal sector.

So, for every formal sector taxpayer, we are carrying three more equivalent earners who just love driving on tarmac roads knowing they avoided contributing to them.

And that’s just cheating: letting the office workers pay for the schools and unga subsidies, while the farmers walk away tax-free.

Add to that, tax is means-related: if you earn very little, and are registered, you pay no taxes.

Yet, so thorny is it to ask all Kenyans to register their incomes for tax that, since independence, we have never even had a policy on who should pay.

We got so close early last year, with a draft tax policy. But the political palatability of launching new mechanisms to tax farmers and informal businesses is, clearly, too onerous.

It would require debate, discussion, a shift in attitudes: or cause riots, maybe?

So, once again, and more than ever, our cash-strapped government has lent on VAT to fund the public sector: for, if we capture taxes in the prices of goods sold, we can include those who think they smell too good to pay direct tax.

Yet, truly, if we ever want to reach that hallowed middle-income status, it’s time our wealthy in the informal sector were paying taxes too before they buy their second SUV: and we should be talking about this.

Do people really have the right to complain about any government, or even to vote, while they continue to cheat the system — choose politicians, use our nation’s public goods, but opt out of paying?

Read: Kenya's dollar multimillionaires double in 10 years

We need a new vocabulary for informal businesses, like ‘tax cheaters’, and to get to a tax-paying society that then holds the government fully accountable for spending, because it’s their money too.