In his first (and only) address to Parliament thus far - in late September last year - President William Ruto took time to speak to his views on Kenya's taxation regime. Offering that "the current tax regime is over-taxing trade and under-taxing wealth", he offered that "the economic principles of equitable taxation require that the tax burden reflects the ability to pay. This is best achieved by a hierarchy that taxes wealth, consumption, income and trade in that order of preference".
There is a useful "hustler" view to this assertion, as the advisors might tell us more simply. The "bottom-up" economic model starts by doing stuff (trade), earning something (income), spending it (consumption) and saving or accumulating the rest for a rainy day (wealth). The reverse taxation logic, therefore, suggests more wealth taxes reduce consumption taxes; more consumption taxes reduce income taxes, and we cut trade taxes from the bottom up.
Try offering this logic to the everyday Kenyan currently bombarded by a tough taxation regime that throws up a new tax in every day of their "doing stuff" lives in a country where actual formal jobs as official symbols of dignity are a fraction of our painful picture of valuable hustler livelihoods.
Or, as mainstream media headlines and social media conversations love to insist, "more pain".
There are a million angles to this pain - ranging from militaristic enforcement to the self-service required for private provision when taxes are misused, misspent or actually stolen - largely around what we might call the four levels of tax compliance belief. The first is, "which country is this?". The next one is, "whose country is this?". That's the current picture of today across Kenya.
But there are third and fourth levels. If taxation is a social engineering instrument for us, then the debate moves to a space where the debate becomes "this is our country" versus "this is my country". The truth is, we aren't at this level of mutual trust in government and among ourselves.
This week's National Tax Summit, the ninth in a virtual series which is reduced to voices with Internet access, might usefully reflect on this rough opening context. The first two sessions on tax morale and predictability could be enriched by the ownership views of ordinary Kenyans and small business even as the procedural complaints of the corporate world are zoomed in and out.
The third, export promotion for better trade, session might begin with a discussion on creating the production base that is taxable. Digital transformation as a keynote on the second day could usefully offer a practical public discussion about thousands of digitised (not digitalized) government tools yet access to actual services is pretty much what officials describe as "industrial corruption". The reengineering principle is always the same - "don't computerise a mess".
Is this an impatient backdrop to the Summit? Most definitely. If it was better designed as a public participation forum also carried on live media (radio and TV, in addition to digital), there might be greater belief in its intended outcomes. Let's try an envisage what these might be. We will work with five framing points for the Summit, in "bottom-up" fashion all the way to the top.
First, the "why", or the National Tax Policy. The current policy sitting in Parliament (shouldn't they pass policies as well as laws?) is exceedingly quick to run to the "what" and "how". Forget the opening "wealth to trade" hierarchy - that was a speech. Indeed, in the policy's procedural lens, it makes the important point that the tax regime needs five-year predictability with a caveat for adjustments. The tragedy here is not that the caveat is a nice wish, but that this is our weak rendition of a "home grown" policy that isn't actually a problem-solver as policy is always defined.
Remember, policy prevents bad by promoting good, while law promotes good by stopping bad.
Then there's the Medium-Term Revenue Strategy (MTRS), the "what" and "how". Except that it's struggling to deal with the "why" that makes policy its guiding light. The simplest way to view the MTRS is it reflects a harsh current circumstance - the pain offered by the current tax regime has more to do with repaying debt than growing the economy. Let's put rough numbers here.
Between 2003 and 2012, debt stock grew by 226 per cent. Revenue flows grew by 290 per cent (and spending flows by 301 per cent). The economy - as a flow - grew by 361 per cent. Between 2013 and 2022, debt stock grew by 347 per cent. Revenue grew by 154 per cent (spending by 167 per cent), and the economy by 166 per cent. Stock and flow arguments aside, there is a relative sense to these numbers. Because revenue is one element of our macro-fiscal equation.
To place these numbers in perspective, the current administration's latest Budget Review and Outlook Paper (BROP) offers the following first-term numbers. Debt will grow by 57 per cent (Kibaki's first term was 23 per cent; Uhuru's 142 per cent); revenue by 91 per cent (Kibaki 113 per cent; Uhuru 76 per cent); spending by 68 per cent (Kibaki 72 per cent; Uhuru 90 per cent) and the economy by 75 per cent (Kibaki 108 per cent, Uhuru 78 per cent). Food for thought.
If we view the above as our first two points on tax policy and tax strategy, then the third debate that this Summit needs - before we go back to numbers - is tax operations, or tax administration. This is actually the core of the Summit agenda; that we have moved from why, what and how, to when and whom. Digitising bad service, or invisible social returns, might be the real pain point that requires an honest debate - everything, as said before, from tax militia to tax amnesties to the harsh reality that the MSME environment that runs our economy only survives by tax evasion.
Is there a way to make taxation painless and seamless without computers? Thinking bigger, at what point do we move from a debt-inspired taxation regime to one that is growth-friendly?
This brings us to two final points that this Summit may consider. They have reverse interrelation in the sense that one is not the other. Put it this way; the government is not the economy.
Let's start with the government. The latest Controller of Budget Report tells us that the cost of general government in 2022/23 (national plus counties) was Sh4.18 trillion (Sh3.99 trillion in 2021/2022). A Sh2 trillion tax take means we under-tax the services we expect from government by half (ie sustainable government requires twice our current tax rates). If our social contract demands that we need government, this shortfall requires huge tax increments or borrowing to bridge the gap. Or a little more imagination in slashing spending, or building non-tax revenues.
Every time you see a big, publicly-funded vehicle transporting a "big person" think about this. Estimates that Sh130 billion will be saved by 10 per cent recurrent spending cuts do not cut it. The reality is Kenya's fiscus has now moved beyond a tax policy debate to a revenue-raising one. The tragedy here is that the true debate should be about the role, and cost, of government.
This could be illuminating. A full-service government would meet citizens willing to pay for them. The knock-on effect would be a level of trust in government's delivery that encourages tax compliance. But this will require a big picture view of government as more than giving to Caesar. In the extreme, the modern government cuts taxes by delivering on its social contract to citizens. Suggesting for this Summit that a debate on taxes is fruitless if government has no citizen value.
Which brings us to taxes and the economy. The last publicised analysis by KRA and Treasury suggested that agriculture - a quarter of our economy - pays 3 per cent of taxes; industry - a sixth of our economy - pays a third of taxes and services - half of our economy - pays up to 70 per cent of taxes. This is pre-Covid data from the 2019 BROP; the economy to which we are returning. So here's a final question for the Summit. How do we tax the economy in a way that grows it, even as we service our public debt, and realise the original thinking we started with on tax policy? This might be the ultimate discussion needed in a Summit as virtual as it is visual.
Because the debate must grow from which or whose country, to my country as our country.
