BWIRE: Is government’s new 2018 tax reforms enough to help poor Kenyans?


Times Towers, Kenya Revenue Authority Head Office.
Times Towers, Kenya Revenue Authority Head Office.

The Government has introduced new tax bands effective January 2018, in an effort to cushion Kenyans against harsh economic realities through reducing the tax burden.

The Government is indeed committed to easing the burden on Kenyans as it works to create employment opportunities and income generating avenues for Kenyans.

The government’s move is laudable, but is the tax reforms enough to help the country lift the millions of its citizens living in poverty and squalor?

The planned new tax bands that lowers the taxed income on mid and lower income earners comes in the wake of missed targets by the Kenya Revenue Authority largely because of tax cheats/evasions by a number of corporates and individuals and generally harsh economic global environment.

A number of players have called for the review of the taxing systems where the rich are taxed higher than the poor, more stringent measures to curb leakages through tax evasion and increased spending in the provision of social services that would cushion Kenyans against investing in social rather than economic ventures.

Pundits have argued against the Constitutional Provisions on economic, social and cultural rights, neglect of such critical social services such as education and health, as seen in the industrial unrest seen in the sectors, flight by professionals and increasingly privatizing social services, as this denies Kenyans capital to invest.

The move by the government to review the taxing regime comes in the wake of a report; ‘Taxing for a More Equal Kenya’ by Oxfam which notes that extreme inequality in Kenya is undermining economic growth, exacerbating poverty and social unrest.

The report further reveals that tax collection in Kenya is still insufficient to meet the country’s needs yet the country  relies on tax revenue as its main source of domestic revenue, with tax receipts averaging 91.5% of the total revenue (not including aid and grants) between 2011/12 and 2016/17.

Oxfam’s analysis of the Personal Income Tax (PIT) system over the past 30 years shows that while the poor are paying less PIT now than 30 years ago, reductions in the number of tax bands and tax rates for higher earners has led to a concomitant reduction in PIT for the rich.

This is despite recent evidence by the International Monetary Fund (IMF) that suggests increasing tax rates for the rich has no effect on growth. The effective PIT rate of Kenyans who earn Ksh7m was reduced by over 50% from 63.2%, to 28.8% between 1988 and 2017.

The average salary for a CEO in Kenya is $114,000 per annum (or Ksh11,767,650), but they will pay the same top tax rate of 30% as someone earning KShs47,059 from 2018.

Furthermore, the value of women’s unpaid care work remains unrecognized in the tax system. Oxfam’s analysis of the VAT system in Kenya suggests that exempting basic commodities from VAT has reduced the regressivity of the tax as a whole, which is welcome.

However, exempting non-food items from VAT has benefited the rich more than the poor, as the rich are more likely to buy these products.

Kenya needs to increase tax revenues to increase investment in public services. The provision of free, good quality public health and education services to all is critical to reduce economic and social inequalities and boost sustainable economic growth.

An increased tax burden on Kenyans will mean continued inequalities in the country, which as it pushes more people to the social exclusion and extremes, including youth unemployment, crime, radicalization, political extremism and sick population the order of the day in the country.

Privatization is threatening gains made in education.  Our government is yet to meet the 15% budget allocation to health as per the Abuja Declaration, and strikes have become the order of the day in the sector.

We are yet to establish the Health Commission envisaged in the Constitution to help in stream lining the health sector.

The Oxfam report calls upon the Kenyan government to develop a national plan to reduce the gap between rich and poor, with clear time-bound targets. It must also ensure that national income and consumption data is regularly updated and made publicly available so that inequality levels can be monitored.

Oxfam has identified five key steps that the government can take to deliver on such a plan, and reduce inequality in Kenya. By taxing effectively, it can redistribute income and wealth while raising much-needed revenue to invest in quality, free public health and education services which are proven to reduce extreme inequality.ackling gender inequality and strengthening the social contract between citizens and the government will also help to turn the tide on inequality. In doing so, the government can help ensure a more prosperous and equitable future for all Kenyans.

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Story By Victor Bwire
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