NAIROBI, KENYA: If taxation is theft, as an American economist once said, then ordinary Kenyans have borne the brunt of this forceful day-light robbery in Cabinet Secretary Henry Rotich’s latest budgetary statement.
The Government has unashamedly raided the pockets of the hoi polloi by severely hitting their basic commodities with punishing taxes, even as it continues to lighten the tax load for the elites in Government and leave loopholes that have helped the rich escape the taxman’s net.
As maize flour, sugar, milk, mobile money, kerosene, and petrol begin attracting hefty taxes this month - with more to follow in January 2019 - lawmakers, envoys, influential manufacturers, large private equity firms, money-minting hospitals, schools and churches will continue enjoying tax exemptions.
This points to a skewed tax regime. The poor folks saw their tax burden increased or go unchanged in the latest budget statement.
Dr Samuel Nyandemo, an Economics lecturer at the University of Nairobi, said the proposed tax regime is one that is friendly to the rich, MPs and manufacturers.
“However, Rotich’s proposals are not friendly to common mwananchi, especially on essential products such as M-Pesa and kerosene,” he said, noting that taxes on such essentials as unga, milk and sugar might be sneaked in if the MPs are not vigilant.
Even the President, who seemed to have no qualms with heavy taxes as long as they attend to his Big Four pet projects, will also enjoy duty-free goods, a perk that comes with the office but which only shields him from the harsh reality endured by his voters.
The new Members of Parliament who have given Rotich’s anti-poor budget a nod will still have the option of importing one car duty-free, often a sports utility vehicle (SUV), to help them traverse the pot-holed roads in their constituencies.
Although the offer is applicable for only one term, it is an envious proposal which ordinary Kenyans can only dream of. Otherwise, other Kenyans pay through their nose to get a car into this country, with taxes having risen by 68 per cent since 2002.
Today, high-end models like Toyota Land Cruiser that dot Parliament’s parking lot retail at Sh21.6 million after attracting a duty of Sh2.3 million. In 2017, the same model was selling at Sh17.9 million after being slapped with a duty of Sh1.9 million.
This means that if the current crop of MPs imported one such car, as they want to, the taxman will have lost at least Sh1 billion in foregone taxes.
This is the amount of money the Government plans to use to subsidise electricity for Kenyans with no access to the grid. This figure would certainly go up as returning envoys from Kenyan embassies and their spouses are also entitled to bring into the country one car each duty-free.
In the current financial year, the taxman must have lost quite a fortune after President Kenyatta re-constituted his Government, sending a number of diplomats home.
Large banks, pension funds and insurance companies have also enjoyed the privilege of lending to the Government, with the interest they are paid not attracting any tax.
As of June this year, the Government’s domestic debt stood at Sh2.4 trillion, with banks controlling the majority share at 54.9 per cent. Pension funds had 27.5 per cent stake, insurance companies 6.4 per cent, parastatals 6.9 per cent and other investors 4.5 per cent.
Other beneficiaries to the defective tax regime include the big hospitals which for long have styled themselves as doing charity work and enjoy a huge tax break.
Despite a promise by Treasury to the International Monetary Fund (IMF) that it would get rid of unnecessary tax exemptions that the World Bank estimated cost the economy Sh33 billion in revenue, hospitals, churches and schools that discreetly engage in profit-making ventures continue to enjoy tax reprieve.
This includes all the major private hospitals where a woman will pay as much as Sh200,000 for delivery; or where a patient’s bill hits almost a million in 12 hours despite the patient dying in hours.
Most of these hospitals pay zero taxes, just because the word profit does not appear in their financial books.
It is the same thing with churches and schools that have styled themselves as non-profit making organisations, but continued to rake in billions in tithes and parking fees.
Today, other than snippets on local dailies, few people are talking about the Government’s proposal to tax mama mboga and jua kali artisans through a presumptive tax of 15 per cent, 12 per cent excise duty on mobile money transactions, and increased taxes on kerosene.
Anzetse Were, a development economist, says that large manufacturers and corporations cannot be faulted for being organised. “We should be asking ourselves, why are small businesses not organised?”
But MPs are organised. They selfishly freed themselves from a proposal that would have seen their salaries hit with a 35 per cent income tax, in what CS Rotich, during his budget speech, disingenuously said was as a result of “public consultations.”
The proposal would not only have affected MPs but a few chief executives as well who earn more than Sh750,000 a month, the amount of income Rotich had targeted with the new taxes.
Fat paychecks
Official figures show that there were about 74,293 Kenyans in wage employment earning over Sh100,000 per monthin 2016, bringing into question the extent of Rotich’s “public consultations.”
Tax Dialogue Project Officer at Oxfam Joy Ndubai says: “The average salary for a CEO in Kenya is Sh11.8 million yet they will pay the same top tax rate of 30 per cent as someone earning Sh47,059 in 2018.” Besides MPs and CEOs who were happy with Rotich’s decision to spare their fat paychecks, deep-pocketed investors with an iron grip on the country’s capital market were also celebrating.
The CS decided to retain capital gains tax at five per cent, as opposed to the proposed 20 per cent, on the sale of stocks, bonds, precious metals and property.
With gambling fast turning into the ordinary people’s stock market, Treasury re-introduced a 20 per cent tax on winnings even as it shelved the proposal to increase capital gains tax on sale of property to a similar percentage.
“Mr Speaker, in the Income Tax Bill, 2018, I had proposed to introduce a higher tax band of 35 per cent on incomes above Sh750,000 per month and an increase of the capital gains tax from five per cent to 20 per cent,” said Rotich during his budget speech in Parliament on June 4.
“However, during the public consultations on the Bill, members of the public raised concerns on these proposals and were of the view that the higher rates are not appropriate at this time. We have considered these concerns and resolved to revert to the rates contained in the current Income Tax Act.”
This is one of the decisions that angered Oxfam, a non-governmental organisation that has been documenting income inequality around the world.
“With excise duty on mobile transactions increasing as of July 1, increased cost of unga, milk and medicine expected, the introduction of the National Housing Development Fund 0.5 per cent levy on employers and their employees, and inflation already having increased from 6.3 per cent in 2016 to eight per cent in 2017, the buying power of the average Kenyan will reduce further,” said Ms Ndubai.
On the other hand, she said, Rotich had proposed to extend tax amnesty on individuals who might have stolen and stashed taxpayers money abroad.
Ndubai expressed concern that the amnesty came with the added exemption of foreign income from the Anti-Money Laundering regulations, thus permitting income from corruption, tax evasion and money laundering to be routed back into Kenya.
“This is in addition to the exemption of gains from the sale of listed securities from capital gains tax and the value added tax (VAT) exemption for aircraft, helicopters and their spare parts.”
“Imposing tax on the fees charged for mobile money transfer directly impact most of the users who have less access to banks and often transfer less sums of money,” said Jared Maranga, tax and investments policy lead at Tax Justice Network Africa.
He said the imposition of excise duty on mobile money transfer portrayed the desire of a government that is mainly focused on raising revenue irrespective of the welfare impact.
Institute of Economic Affairs Chief Executive Kwame Owino said that private investors sit in a number of Government agencies, and that explains why they have been able to push through their proposals with ease.
Auditing firms
The country’s budget-making process has been hijacked by large manufacturers and corporations who ram through their proposals to Treasury and Parliament, and lobby for the removal of those that do not sit well with them.
For large corporations, their tax advisors include the Big Five auditing firms - Deloitte, Ernst & Young, KPMG, PwC and PKF - which are known to provide the Government with expert accountants to draw up tax laws.
But the firms also advise large corporations and individuals on how to exploit loopholes around tax legislation.
After the 2018/19 Budget Statement, senior tax experts from some of the audit firms took every opportunity to speak passionately against the proposal by the Government to tax the wealthy.
They were, however, impassionate when speaking on the increase of excise duty on kerosene and mobile money transactions.
One tax partner at one of the audit firms castigated the decision by the Government to hit cash transactions of more than Sh500,000 with a 0.05 per cent, saying this would cripple the private sector.
“Robin Hood taxes such as the 0.05 per cent excise tax for businesses transferring Sh0.5 million and above will hit manufacturers hard. Their operating costs will go up,” he said during a post-budget event organised by Commercial Bank of Africa.
“The reality is that the Government needs money through taxation and at the same time wants to revamp manufacturing. It is like trying to have your cake and eating it,” he added.
But it is manufacturing that wants to have their cake and eat it. Kenya Association of Manufacturers Chairperson Florah Mutahi said they would lobby Treasury for the removal of the Robin Hood tax.
“Surely, it is like giving with one hand and taking with the other,” she said during the CBA forum. Ms Mutahi talked of the folly of the Government giving them protection from foreign competitors, and even setting aside allocations for some of their sectors, only to turn its back and slap them with crippling taxes.
“No meaningful growth can come with this tax regime,” she said.
Protection of manufacturers is what economists call import substitution, and the current Government is doing it under the guise of one of its pillars of the Big Four Agenda - the creation of jobs.
However, some observers have noted that some of the proposals aimed at revamping the sector have, by and large, been pushed by influential individuals and families some of them in industries such as iron and steel, paper and edible oil, where Kenya does not enjoy a comparative advantage.
Controversial economist David Ndii, in a recent article, said the Government’s import substitution is not meant to improve the lives of Kenyans but to benefit a few well-connected individuals.
He singled out the recent import tariffs on timber, vegetable oils and paper products as one which benefitted some players in the industry, even as they made it a living hell for consumers.
The economist argued that what made the leaders of the East Asian Tigers pursue export-led industrialisation was the need to “improve the lot of their people”.
“I postulated that they (leaders of East Asian Tigers) did not set out to perform economic miracles, but rather to improve the lot of their people, which led them to the realisation that capital-intensive import substitution industries would not create jobs for the masses,” said Dr Ndii in the article that appeared in an online publication.
Revenue generation
And yet in a forum held in Nairobi before Rotich’s budget speech, an official of KAM boasted how 80 per cent of their proposals to Treasury had sailed through, even when it was clear that they are being protected at the expense of consumers.
Ms Were says most of the taxes that are being proposed by Treasury are made just for the sake of revenue generation, rather than to reduce the cost of production.
“Those taxes are not linked to anything beneficial,” she said, noting that without helping ease the cost of doing business, consumers absorb the high prices of products. In addition, things will not be easy for ordinary Kenyans who will be slapped with a penalty of Sh20,000 should they delay to file their tax returns, as the Government moves to squeeze every penny from taxpayers.
And as though going for the jugular, the taxman will also expect all small businesses, most of which cannot survive beyond their first year, to pay a presumptive tax of 15 per cent.
A good chunk of this money, most Kenyans fear, will end up in the pockets of private individuals, rather than be used to buy medical supplies for the nearest public hospitals.
“I am therefore proposing to amend the Tax Procedures Act to increase the rate of late payment interest to two per cent, and also introduce a 20 per cent late payment penalty,” said Rotich.
This action, he said, would ensure compliance and would boost revenue mobilisation efforts for the Big Four plan.
