The most endearing question on the growth of a state should be, do we tax ourselves to growth or poverty, economic extinction and obscurity? While tax is a grand necessity, the growth of nations is pegged on taxation systems that allow for equitable redistribution and tandem growth in the middle and lower classes — the low-income group.
A good example, and which has generated much controversy and qualified opinion in equal measure, is Kenya. The recent concession by the Executive and the measures introduced in the tax reforms — taxing fuel and introducing a vague organ on kerosene and highly taxing mobile money and data is such.
A recent study by the financial analysts Financial Sector Deepening (FSD) shows mobile money has reduced poverty — notably among female-headed households. Two per cent of such households were lifted out of extreme poverty and more than 185,000 women were enabled to move out of subsistence farming into full-scale business or sales occupations.
According to the Central Bank of Kenya (CBK), cash transacted via mobile phones hit Sh3.7 trillion in the 12 months ended March 2018. From April 2017 to March 2018, there was an increase of Sh219 billion. Largely driven by small-scale business, gambling and mobile loans, mobile money transfer is a juggernaut on its own.
The Economic Survey 2018 shows the value of information and communication technology (ICT) output increased by 10.9 per cent, from Sh311.1 billion in 2016 to Sh345.1 billion in 2017.
Such is the pull of mobile money that the government has mobile-based Treasury bonds. The likelihood of paying for government services such as passports or driving licences are higher than ever, thanks to e-Citizen.
Several studies show a direct correlation between mobile money and economic growth.
The International Food Policy Research Institute (IFPRI) estimated, for instance, that for 113 countries over 20 years, there was a positive relationship between mobile money and gross domestic product (GDP). For a singular one per cent increase in the telecommunications penetration rate, there was a 0.03 percent increase in GDP.
If such growth comes out of as noble an initiative as small-scale adoption of mobile money, was the tax increase warranted?
The National Treasury had projected an economic growth rebound of up to 5.8 per cent, even after taking into account drought, an uncertain electioneering and sluggish private sector credit growth.
Any little over-taxation of petroleum products slows the economy. The new value added tax (VAT) on fuel products has seen retail prices of petrol shoot up by two per cent per litre and transport operators have already raised charges.
Passed in 2013 but postponed several times, the VAT has turned out to be the haunted valley we all feared to cross. But in returning it to Parliament and later assenting to it with his amendments, the President tossed into the tax net a vital cog of the economy that needed not be taxed so heavily — mobile telephony products.
Economies worldwide, and economic activity, tend to shadow a balance between people, economic activity and the government in the buy/sell criteria. Economic policies biased towards growth thus tend to focus on one or two budgetary years with demand being a key factor.
Kenya is a rising star in ICT and is fondly referred to as the “Silicon Savannah”. ICT exhibits potential to be a key player in turning around an overburdened economy and could even haul Kenya into industrialisation. Over-taxing it is hardly the way to run around the wheel and reinvent growth.
A society cannot expect to be taxed in such a way ours is and still be expected to prosper. The youth could shun the internet, stifling mobile services growth. Also, with mobile money penetration at 95 per cent, according to official figures, taxing it raids the pockets of already struggling Kenyans.
Pray, we gifted the world mobile money, M-Pesa, why do we want to kill it?
Ms Benyawa is a freelance journalist. [email protected]