Middle class must awaken to reality of expanding taxation

Treasury CS Njuguna Ndung'u. [Elvis Ogina, Standard]

For a change, it may soon be the turn of middle and upper classes to bang sufurias (pans). Through the National Treasury, the Kenya Kwanza administration have announced their intention to significantly increase taxes this week. It remains to be seen whether they awaken a docile and traditionally apolitical middle class.

The Draft Finance Bill (2023) is before the public. It plans to increase income tax from 30 to 35 per cent for all those earning Sh500,000 and above. Last Monday, the President Ruto also announced a new National Health Insurance Fund schedule. The new rates double premiums at the lower spectrum but for those earning monthly salaries above Sh500,000, the mandatory costs will multiple ten-fold.

If that was not enough, new compulsory deductions may force employees and employers to both contribute 3 per cent each what is left of their salaries and wage bills into a new Housing Development Fund. These new measures follow on the heels of the three-fold capital gains tax January increase to 15 per cent.

President Ruto laid bare his ideological position back in September 2022. He committed his administration to a tax hierarchy that taxes wealth, consumption, income, and trade in this order. Equitable taxation must require the watajiri (the rich) to pay more, he argued.

The triple-shot is a gamble. The tax burden already falls on very narrow circle of taxpayers. Squeezed between a contracting economy, falling shilling, increasing joblessness and high costs of living, social media and the SMS chatrooms are buzzing. As with all social experiments, the scenarios are many, but four obvious ones leap out.

Tax experts with specific mastery in minimising tax obligations will become the fastest growth industry after construction at this rate. They will be hunted to help the few that are paying to avoid but hopefully not, evade the new taxes if they go through. Tax avoidance are tactics taxpayers take to reduce tax ability and maximize after-tax income. Tax evasion on the other hand, is the deliberate underpayment or failure to pay taxes that are due.

Outright resistance

The third is outright tax resistance. Powerful states like the Egyptian, Roman, and Spanish empires have fallen to active civil disobedience and mass protests over several centuries. Jewish taxpayers in Judea struck back at the Roman empire as far back as the 1st century. According to Luke 23.2, one of the charges against Jesus Christ before his excruciating torture and extra-judicial killing was that he had promoted the tax rebellion.

In 1197, residents of Constantinople (current day Istanbul, Turkiye) flatly refused to pay taxes to Henry VI. The authorities were reduced to digging up jewellery and valuable ornaments from old tombs and graves. More recently and closer to home, those Marimanti market vendors of Tharaka Nithi County may soon be in high demand as strategic advisors. Last year, they organised a tax strike to protest the county government's failure to maintain their market toilets.

The new proposals further compound the reality that Kenya has one of the highest tax regimes in the world. Increasing the tax burden for the wealthy will likely encourage tax evasion and drive more capital into those tax havens the rich know so well. More hopefully, perhaps it will be these measures that will break the punda's (donkey) back and the middle class will rise with the working and hustling classes to demand less bloated wage-bills, wasteful expenditure, and more quality services.

If there is a time, more Kenyans might disassociate as shareholders in Corporate Kenya to quote Deputy President Rigathi Gachagua, it could be now. Can we in good conscience pay more taxes when all around, county, and national development projects and essential services are grinding to a halt? We must demand a zero-tolerance for corruption and wastage, expanded services with clear legal minimums like a basic living wage and social protection and equal enforcement across the politically connected. More fundamentally, are the new tax proposals equitable or just excessive, we must ask ourselves.

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