Where do Kalonzo’s taxation proposals leave us?

One of the lessons I learnt from my father was the philosophy of wealth — naturally — and, more specifically, how, in his view, to get rich. Wealth, I was tutored, is not necessarily having a lot of money in the bank. Being wealthy is having many little sources of money and few costs. It is like a big sufuria with many pipes pouring water in and many holes draining it out. You get rich by multiplying the little pipes and reducing the holes.

It follows, therefore, that I should resent having to spend money on taxes. If the government cuts taxes tomorrow, therefore plugging a few of those holes, I’d go out and have a beer in celebration.

IT IS FOR THIS REASON THAT I THINK Mwingi North MP Kalonzo Musyoka deserves a warm round of applause not necessarily because he has made useful proposals — I shall turn to that shortly — but because he has turned the spotlight on an issue which is of absolute importance to us all: Taxation. I am willing to bet a substantial amount of money that all presidential hopefuls will announce their own tax measures, too, borrowing good ideas from each other liberally.

I feel that there is no radical, visionary thinking about the economy coming out of the Treasury. The people in charge there are content to fix what Mr Daniel Moi had undone and create a few efficiencies, but they exist in the vague, misty Kibakian world where kila kitu iko sawa (everything is fine). By drawing up concrete proposals, the Opposition is forcing economic managers to take a closer look at their own policies and this can only be good for those of us who would be happy to seal a few holes in that sufuria.

Having said that, let me turn to the specifics of Mr Musyoka’s proposals. Now, heaven knows I am not an economist. I am just a peasant, on loan from the village, whence I shall return at the expiry of my tour of duty.

I have read Mr Musyoka’s proposals and, whereas I have an ideological problem with them, I must confess that many of them on housing and agriculture are quite good.

But it is the attitude of his proposals in dealing with poverty that I disagree with, especially to the extent that they seek to create a welfare state, a mistake that has been committed all over Africa by misguided socialists. I believe that giving Mwafrika free things is a bad thing; he will not work. There is also no such thing as “free” where government is concerned: It takes from you to give to me and when it does that, you’d like to hear a very good explanation for it.

WHY AM I POOR? IS IT BECAUSE I PREFER to sit in the house, drink busaa and make babies for you to educate?

I think it is bad politics to glorify poverty and excuse laziness by creating non-existent “victims”. Every man is called to work with his hands and care for the issue of his loins. If he has no hands, then every man is called to help him. That is why the man who pulls a mkokoteni to feed himself is my brother. The one who defecates in his own house — and blames it on poverty — just because he does not wish to pick up a shovel and call a few of his buddies to help him dig a latrine has no claim to my taxes or pity. He has made a lifestyle choice and I am happy to respect his wishes. Number one, Mr Musyoka is proposing to shrink the tax net by raising the minimum taxable income from Sh10,000 to Sh30,000 and the earnings at which the maximum rate of taxation is applied from Sh38,000 to Sh150,000.

I AM TOLD BY THE BUSINESS JOURNALists that this will cut government revenue by Sh96 billion. You can comfortably do this if you wish to cut expenditure as well, but if you are proposing a welfare state, complete with welfare cheques — Family Support Coupons — where is the money going to come from? Probably from more taxes from the few who are left in the tax net.

It is like a man who writes to his employer instructing him to cut his salary by half, then goes out and marries an extra three wives. It is a recipe for a heavier tax burden on a smaller group, to let the mass off the hook of paying their own way.

“It is common knowledge that the rate of compliance with our taxes is extremely low,” said Mr Musyoka. Spoken like a true MP, who pays no tax.

True, tax compliance in Kenya is low. I have seen a study which puts the rate of VAT compliance at 50 per cent and income tax compliance at 30 per cent. I think the attitude should be to enforce compliance with the ultimate aim of bringing the rate of taxation down, to encourage investment and production, rather than maintaining the current high rates to give free cheques.

THE FOCUS ON INCOME TAXES IS PERhaps overemphasised, the bulk of our taxes are the so-called consumption taxes. I have seen a study which says that consumption taxes are the equivalent of 10 per cent of GDP, income taxes 7 per cent. It is therefore possible to give income tax breaks to low earners, who are still clobbered by indirect taxes.

“It is my conviction that it is possible to double the current level of tax collections without introducing new taxes or raising existing ones,” Mr Musyoka said. Yes, but is it desirable? As a proportion of GDP, Kenya has one of the highest tax yields in Africa. I think the current thinking is to target a tax-to-GDP ratio of 22 per cent. If you double collections, you will have a tax ratio of 40 per cent, higher than the average for developed countries.

Probably the way to proceed is not for the government to suck up more money but to cap taxes at 22 per cent of GDP and leave enough money in our pockets for capitalism to do its job of creating jobs and wealth.

Mutuma Mathiu is managing editor, Sunday Nation.

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