Why is Finance Bill 2024 so contentious?

 Stimulate the economy to grow faster. [iStockphoto]

The Finance Bill 2024 is 135 pages and a difficult read. It keeps on deleting or inserting words, phrases and paragraphs. It is not written for the ordinary citizen despite the rising literacy levels. Can it be translated into local languages?

The content of the Bill was overshadowed by the pronouncement by the president that he expects to raise the tax ratio to gross domestic product (GDP) from the current 14 to 22 per cent.  Let’s add that the Kenya Kwanza government is also shifting its measurement of debt from absolute terms to a percentage of GDP.

Percentages, from your high school maths, make it easy to compare debt or tax across countries. Back to tax to GDP ratio.

A higher rate from 14 to 22 means two things. One, there will be more new taxes or high taxes. The easiest way to reach this target is for the economy not to grow but to raise more taxes! Simple maths. 

As long as the economy grows this target is moving. To get it, the tax revenues should keep growing. That is everyone’s concern. Higher tax rates or new taxes will depress the economy, making it harder to raise more taxes. This is compounded by the fact that money is more efficiently utilised in private than public hands.

Stimulate economy

There is a short cut to reaching this target. Stimulate the economy to grow faster. We become wealthier and our tax rate goes up. Remember our taxation is progressive, we pay more taxes the more the money we make. Someone making Sh10 million pays more taxes and at a higher tax rate than someone making Sh100,000.

To get the numerator right from 14 to 22, we must focus on the denominator, the GDP. How can we grow it faster? 

First, build confidence in the economy. Fear and uncertainties are enemies of economic growth. Think of the economic calmness from a stronger shilling or stable oil prices. Think of less corruption, real or perceived and its calming effect. The feel good effect is the best economic stimulus.

Cutting taxes is a universally accepted way to stimulate economic growth. Do you recall Kenya Revenue Authority almost meeting its targets during Covid-19? It’s not a paradox. Do you recall the tax cuts? Why can’t we try that now? We have not reached the apex of Laffer’s curve. That is what the ‘Covid-19 experiment’ demonstrated.

The Kenya Kwanza (KK) government’s bottom-up economic model targets the lower echelons of society. Are they feeling good? If yes, they will work harder and be more productive. An extra shilling among this group would have a bigger impact than among the affluent. 

The government has targeted a few sectors, just like Big 4 or Vision 2030 before that. One is agriculture, disdained but critical to the economy. To borrow from golf, KK must follow through with these projects. 

We can also grow the economy with more focus on the external market. Think of East Africa Community, Africa Free Trade Area and the world. 

Growth comes when there is demand for our goods and services. China or South Korea or the UK grew because they developed a vibrant export market. Our market of 55 million is too small.

Our biggest preoccupation should be what each county can produce and export. We should be exploring how we can link county supply chains into global markets. Think of Japanese cars or South African wine. 

We should focus on how to make money to pay taxes, not just taxes. 

Let’s say something about Finance Bill 2024, which I hope will be robustly debated. Governments all over the world are run through taxes and debt. We shifted from debt to tax after Kenya Kwanza got to power, only in emphasis. We are still borrowing. 

Kenyans are not refusing to pay taxes. They are simply asking for equity and sensitivity to their plight. And value for their hard-earned money. If the middle class is struggling, think of those lower down the economic ladder. Did I hear that bread is for the middle class? What of all the students who live on bread?

It reminds me of someone setting up a pizza selling point outside the University of Nairobi. They closed after realising pizza is not for students. 

Increase productivity

Why tax cars again beyond insurance and petroleum levy? Should we not be encouraging car ownership to increase productivity and convenience that goes with a car? Why do we still believe that owning a car is a sign of wealth, more than a century after its invention?

The digital space is growing and a target of taxes too. Let’s not kill the goose that lays the golden egg. Would reducing the waste and duplication of services between the county and national government or among government agencies not be a better option than higher or new taxes?  Remember the proposed merger of some government agencies?

Noted the Eco levy, after housing levy? It’s in Tanzania and Ghana too. It is charged on products deemed to cause pollution. It seems an ingenious way to get more revenue for the government is through levies, which are more politically neutral.

Let’s robustly debate the Finance Bill 2024. After all, we elected the government to implement it. That’s also the reason it should listen to our sentiments. Why did past finance bills not generate so much heat?