A tax policy is urgent for Kenya’s economy

After holding hands and singing ‘kumbaya’ with a government that embarked on a costly nine-year mega-project investment spree that has quadrupled real debt while slightly more than doubling the nominal size of the economy, there was a real feeling of “karma” observing private sector leaders lament the deleterious impact recent tax changes would have on jobs and overall economic recovery.

In truth, if we think of debt as tax on future generations, then Kenya’s ongoing revenue-driven fiscal consolidation, as the IMF likes to put it, reflects the sudden realisation that there’s only so much that can be kicked down the road, and sometimes one must pay on earth to proceed to heaven.

Like its cousin death, no one really likes to think too much about taxes. Most analyses we encounter during our annual budget season is restricted to the transactional perspective of winners and losers.

As one who taught the subject in an earlier life, I can assure you that it is a devilishly fiendish area, full of “smoke and mirrors”, reliance on the experts and purposive design to befuddle and bamboozle us.

The late former US President Ronald Reagan, of “trickle-down” economics fame (a subject that is burning us up right now), is well known for a couple of his more interesting quotes on tax.

Let’s use them to capture our present economic mood. He once lucidly observed that “simple fairness dictates that government must not raise taxes when families are struggling to pay the bills”.

Nothing to add here; we shall soon feel government’s righteous wrath on cooking gas, communications (mobile) and access to credit.

Reagan once summed up government’s view of the economy thus: “if it moves, tax it. If it keeps moving, regulate it.

And if it stops moving, subsidise it”. Now that we’re on an IMF/World Bank life support programme, why does that sound so familiar? Before and after the fact of the programme.

Here are more observations from the man that we might usefully reflect upon. First, “government does not tax to get the money it needs, government always finds a need for the money it gets”.

Think about this in the context of a Kenyan fiscus in which revenue is always chasing expenditure.

Which leads us to the next one: “the (insert your country) people are not under-taxed, the government in (insert your political capital ) is overfed”.

Then there’s the coup de grace: “we don’t have a (insert your debt level) debt because we haven’t taxed enough; we have a (said debt level) because we spend too much”.

Let us return to our opening lamentation. What is the policy thinking that underpins our tax regime? We probably had some inkling in the old days, when Finance ministers explained the policy logic and revenue impact of every major tax proposal.

These days it’s all words, more words then boom, gotcha!

However, there was something different this year. Paragraph 91 of the 2021 Budget Statement acknowledges that “our tax policies are spread across various tax statutes which are amended every year during the budget process, creating uncertainty in tax legislation”.

Apparently a National Tax Policy Framework to “enhance administrative efficiency of the tax system (and) provides consistency and certainty in tax legislation and management of tax expenditure” is in the offing, and a draft is ready.

Is tax policy the answer? The Kenya Revenue Authority (KRA) promises tax policy reforms over the next three years to “ensure stability and clarity of tax laws”, but that’s part of the customer, rather than revenue or process, elements of its 2021/22-2023/24 Balanced Scorecard.

In contributing to this corporate plan, private sector sought three things: tax regime stability, positive taxpayer relationships and transparent tax administration processes.

Then, as I have written before, even BBI recommended a national tax policy, offering the oddly “Big Brother” notion that “without tax, there can be no Kenya” while adding that “tax is the basis of government”.

Let’s just say we’re not even close to the social contract on that thinking.

Don’t expect much input from Bretton Woods, who believe Kenya to be a “tax frontier” (under-collector), and would prefer we focus on the nuts and bolts of collection, not policy principles.

They might be right, though, considering the recent Cost of Politics report which tells us that it costs 15 times our annual per capita income to become a MCA and 10 times that much to get to be a Senator.

If we are serious about this tax policy idea, we could begin with Reagan’s musings. We might also get theoretical, and recall Adam Smith’s equity, fairness, simplicity, certainty, convenience and efficiency principles.

Or we might reverse-engineer policy from three OECD thoughts on what a revenue administration like KRA depends on to succeed: the state of the economy; the extent to which the public supports government priorities and willingness to comply with tax rules.