NAIROBI: Recently, my attention was drawn through a WhatsApp group (to a novel idea called the Artharanti Proposal. Apparently one of the key members of this organisation was given nine minutes with India’s Prime Minister to put forward the proposal and emerged two hours later!
The proposal has been put forward by a Pune-based economic advisory body made up of group of accountants and engineers called Arthakranti Sansthan. The word Artha translates to economic and Kranthi to revolution. This should give a good indication of where this is headed!
So what is the Arthakranthi proposal? First, it is calling for complete withdrawal of taxes and secondly, that every credit transaction routed through a bank should be subject to a transaction tax at an appropriate percentage. The third proposal is that high value currency denominations to be withdrawn and the fourth is to ensure that cash transactions do not attract any transaction tax.
And lastly, it is proposing that government to introduce legal provisions to restrict cash transactions up to a certain level only. And what are the perceived benefits? The obvious one is that we take away all the red tape of filing returns and paying tax severally during a year. The taxpayer saves on tax payments and filing numerous returns. Also, there is increased transparency in the economy, drop in commodity prices; lower interest rates, removing black money from the system, reduction in corruption to name but a few.
In principle the proposal seems to hit all the right notes. If its implementation can achieve even half of the benefits that are being envisaged it would be a good thing. The size of the Indian economy would certainly seem to support a system that generates revenue only from customs duties and a bank credit transaction tax.
Removing the bureaucracy that goes with doing business in India will go a long way to making the country more investor friendly. That is not to say that it isn’t already a favoured destination for foreign direct investment but any increase can’t but help. But would a system such as this work here in Kenya? In 2014, according to the World Bank, India’s Gross Domestic Product at market prices was $2.049 trillion (Sh207 billion) with a population of 1.295 billion. By contrast, Kenya had a GDP at market prices of $60.94 billion (Sh615 billion) and a population of 44.86 million. These numbers probably speak for themselves. Moving to financing government by way of a banking credit transaction tax may work in India but is likely to leave us considerably short in Kenya. Of course if a transaction tax was going to be the sole source of revenue then mobile money would also be caught and that is an area where Kenya is streets ahead of India already.
There are, however, a number of similarities between the two countries. Entrepreneurs play a big part in the economies, a significant “jua kali” sector means a narrow tax base, high levels of poverty, a significant amount of red tape, a high number of counties and states, and of course that old curse corruption. So on the flip side of the coin may be the Arthakranthi proposal could work in Kenya with some tweaking. Perhaps a hybrid, taking some of the proposals and not others, could benefit us here in Kenya.
In essence the proposal goes much further than a simple shift from direct to indirect taxes – something I have advocated for many years. It actually goes towards a removal of all taxes and perhaps Kenya is not quite ready for that yet. But decreasing direct taxes could give some of the boost the proposal envisages. Kenya hasn’t changed its direct taxes since 2005 and so this may be a good time to do so! If we add to that a significant simplification of our existing tax system who knows what it would lead us to except in the right direction.
Of course if we were to go the full way, what on earth would a tax consultant like me do! More food for thought I think.
The views expressed in this article are the author’s and not those of the firm.
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