The people have spoken on Finance Bill; MPs must pick where they stand

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Aerial view of Parliament, September 2018. [Edward Kiplimo, Standard]

As the legal deadline to pass a national budget and Finance Act approaches, we must commend the citizens who have voiced the will of Wanjiku. Emotions have been stirred, the sincerity of public participation tested, and the willingness of the perceived oppressor to listen questioned.

Next, attention turns to the National Assembly for the final decision, fulfilling Article 114, which requires money bills to be handled by the House. By doing so, members of the National Assembly exercise their duty of representing those who elected them.

In this article, I will not repeat the numerous submissions made by various stakeholders to the Finance and Planning committee led by Molo MP Kimani Kuria. In sum, the people have spoken!

The responsibility now falls to elected representatives to vote on the controversial Finance Bill 2024. About 12 months ago, we faced a similar situation with the 2023 Finance Act, which sparked heated debate when Parliament turned its back on the electorate. Ultimately, party positions and the will of the supreme leader carried the day.

Regardless of the outcome of the bills going to Parliament next week, two positive aspects stand out from this process.

First, our democracy has been strengthened as Article 201 (a) on openness, accountability, and public participation is upheld. Those in power, however, must worry whether this growing public dissent could influence other areas of governance and potentially impact future elections. Time will tell, but an emboldened citizenry poses a real risk.

Second, we now have concrete evidence from the 2023 Finance Act to compare submissions made a year ago with its actual outcomes. As noted in the book of Luke 24:18, unless one is a visitor to Jerusalem, we have a clear idea of the final outcomes: The taxman has reported a shortfall of approximately Sh300 billion.

In this column, we have tracked official data and consistently demonstrated that many of the tax categories that were contentious 12 months ago have not generated the projected tax revenue. This has occurred despite the disruptions or negative impacts on economic activities in various sectors, which may also have affected related tax categories in their value chains.

Alcoholic brewers

The Kenya Federation of Employers recently reported that their members have shed at least 70,000 jobs. Major alcoholic brewers in the country have also reported declining fortunes. The 2024 economic survey shows a continued decline in manufacturing Gross Value Added (GVA) from 2.6 per cent in 2022 to 2 per cent in 2023.

Additionally, three major multinational corporations—pharmaceutical giants GlaxoSmithKline and Bayer, and Procter & Gamble—have either significantly scaled down or exited the Kenyan market as of the end of May 2024 or plan to exit by the end of 2024, according to their official statements from late last year.

Considering the evidence from the outgoing Finance Act and the persuasive submissions made to Parliament over the past two weeks, five factors will ultimately determine the fate and outcomes of the Finance Bill 2024, from the approval process through its implementation in the fiscal year 2024/25.

First, we need to consider whether lessons from the 2023 Finance Act have been applied to the new bill. Recently, this column quoted American statistician W. Edwards Deming: In God we trust; all others bring data.

Given the heated debates we have seen recently on our television screens, it seems the Treasury officials might be taking an easier route in their macroeconomic planning. How else can we explain the jump from the frying pan to the fire by trading one problematic bill in 2023 for another in 2024? What informs their tax policy choices if not the evidence before them?

Kenya Kwanza has access to some of the country’s most respected economic experts. Aside from the substantial salaries funded by taxpayers, what tangible results can they show? Why can’t these experts convince even the hustlers who voted them into power that they have a clear and well-thought-out plan? How can their proposals make economic sense only to themselves and no one else?

Second, the proposed tax measures will likely disrupt economic activity. Business owners have clearly stated that some of these ill-considered tax proposals will either destroy their businesses or cripple certain sub-sectors. In my article on May 18, I quoted Joshua Rauh and Gregory Kearney’s proposition that taxes must never be allowed to get in the way of economic activity.

Give unto Caesar

No investor or individual works solely to pay taxes. People and businesses pay taxes because it’s a necessary part of their pursuit of wealth. In fact, work is ordained in Genesis 1:28, where the Bible commands us to subdue the earth and be fruitful. Mark 12:17 instructs us to give Caesar what belongs to her and God what belongs to Him. Scripture never implies that Caesar should take everything from us, as Kenya Kwanza seems to be attempting.

Third, there’s a flawed assumption that single tax streams exist in isolation from other sectors of the economy and tax categories. For example, did anyone in Kenya Kwanza conduct simulations to examine how the controversial housing levy impacts consumer decisions, associated taxes, and value chain disruptions? Has anyone demonstrated that the net benefit from this tax outweighs both its direct and indirect consequences? What is the evidence?

Finally, tax policymakers assume that consumers have no alternatives or substitutes they can turn to. While the government may use its majority power in Parliament to pass the Bill with only minor adjustments, it cannot take away consumers’ inalienable rights to choose their economic activities and what to consume.

People and businesses do not pay taxes per se; taxes come from the incomes generated by their economic activities. If taxes kill production, there will be no income to tax. Like millions of other taxpayers, I will make the appropriate decision, at the opportune moment, based on my household’s economic realities. No one can take this right of choice from me!