Housing levy verdict an indictment of tax policy

The verdict of a three-judge Bench on the legality of the contentious housing levy is a major indictment of our tax systems.

Justices David Majanja, Christine Meoli, and Lawrence Mugambi in their ruling aptly pointed out that it is illegal to subject slightly more than 3.2 million Kenyans in formal employment to the tax introduced in July while leaving out more than 15.9million others in the informal sector from contributing to the fund.

This kind of sloppy tax administration is typical in many developing countries where authorities go for the easy target and avoid doing a comprehensive job of distributing the burden as widely as possible.

Going after those in the formal tax bracket is always the preferred option for the tax agencies but this means that only a few people bear the weight of punitive tax payments while the masses in the informal sector went scot-free.

The downside of this scenario is that marginal changes affecting the easy-target formal sector are preferred over major shifts that would rope in a wider tax base and limit the pain on a few as pointed out by the judges.

Tax agencies also tend to turn a blind eye to evasion by the influential super-rich. Although an efficient tax system would demand that the rich be taxed more heavily than the poor, the economic and political power of rich taxpayers often allows them to prevent fiscal reforms that would increase their tax burdens.

The State must therefore pay attention to the concerns raised about the imbalance in our tax system and find ways of widening the net so that everyone carries the burden.