Why tax without accountability is unacceptable

Taxation. Often one reads in the business pages of Kenyan newspapers the claim that Kenyans are among, if not, the highest taxed people in the world. PHOTO | FILE | NATION MEDIA GROUP

What you need to know:

  • Comparative prices of diesel and kerosene on the one hand and petrol seem to favour petrol, which is used by fewer Kenyans, who are often wealthier than those who use diesel and kerosene.
  • Every year the auditor’s reports show that nearly a third of the money that the government raises is misused or stolen.

The government has lately been urging Kenyans to pay more taxes if they want services and development to reach them.

As the national debt and cost of running the government balloon, the exchequer has looked for more ways to raid the ever emptying pockets of Kenyans.

Often one reads in the business pages of Kenyan newspapers the claim that Kenyans are among, if not, the highest taxed people in the world.

Yet, how many Kenyans understand how the tax system in the country works? What is the history of Kenya’s tax system?

Does the government have justifiable and legal reasons to raise the taxes that it demands from Kenyans today when evidence seems to suggest that collected tax is wasted?

These questions, among many others relating to tax collection and spending, are relevant because the annual report by the auditor-general shows serious profligacy by government officers.

MISUSE

Every year the auditor’s reports show that nearly a third of the money that the government raises is misused or stolen.

The names of the institutions embezzling State resources and those of individuals who should account for the lost money are listed but nothing really happens to show that the collective taxes are put to good use.

Yet even when these troubling reports come out, there is hardly sustained public discussion on why taxes are collected at all by the central and local governments, what types of taxes should be collected, from who, when, where, how, and to what use the money should be put.

Where and when the debate happens, it is most likely among very specific civil society groups dealing with tax justice and consumer protection.

Which is why reading the book Taxing Africa: Coercion, Reform and Development by Mick Moore, Wilson Prichard and Odd-Helge Fjeldstad (Zed Books, 2018) is a big eye opener.

EQUALITY

The three researchers at the International Centre for Tax and Development, in Brighton (UK), writing in a most accessible language, for a book dealing with such a complicated subject, highlight a number of issues, which they correctly call the big questions in taxing Africa.

These include “the diversity of tax experiences” — dealing with what they term the “many different tax worlds in Africa”, from the big taxes from the multinational corporations (MNCs), to the “world of small taxes”, such as the ushuru collected by county government officials at the local markets.

This is a very sensitive subject considering that many ordinary citizens, most often in the countryside, pay several “small taxes” which is a significant proportion of their income.

The next big question is that of fairness, equity and inequality. In other words, what are the implications of supposedly progressive, direct taxes, as opposed to regressive, indirect taxes?

How does charging equal value added tax on essential commodities affect the poor compared to the rich?

For instance, most farmers and small and medium enterprises use diesel for machinery, while a majority of Kenyans use kerosene for lighting and cooking.

TAX EVASION

Yet, the comparative prices of diesel and kerosene on the one hand and petrol seem to favour petrol, which is used by fewer Kenyans, who are often wealthier than those who use diesel and kerosene.

Do the wealthy in Africa really pay personal income taxes compared to the poor?

If the rich were to pay their proportion of tax, it is assumed that there would be wealth redistribution.

Yet evidence would suggest that the rich have the means to avoid paying taxes. Shouldn’t the wealthy pay property taxes, which could add a significant amount of money to the national exchequer?

Another set of questions the authors ask is: How is the tax regime in Africa linked to the international tax system?

What does it mean for African governments when MNCs and wealthy Africans (with politicians making up a significant proportion) legally or as is often the case, illegally, hold much of their wealth offshore?

POLITICS

Can African governments really influence international tax practices to be more responsible where it concerns tax avoidance by corporations and individuals who stash their wealth in more powerful countries?

Does implementing strict tax systems in relation to foreign investment turn off the investors or is it just the right thing to do?

These questions demonstrate how sometimes tax policies and practices in Africa are undermined by a global financial system that has made it easier for money to flow across country borders and possibly even re-enter the country as foreign investment, whilst avoiding taxation.

Can Kenyans really trust the government when it alleges that it will repatriate billions of shillings (illegally) banked abroad?

The authors then raise one of the most significant questions relating to taxation in Africa: How does politics impact on the efforts to reform the tax system in Africa?

REFORMS

In Kenya discussion about reforming government institutions always ends with the refrain, “there has to be political support and will” for the changes to work.

This is quite important where taxes are involved. Why? Because, as the authors note, “Taxation involves extracting resources from taxpayers with no guarantee of any kind of corresponding benefit.”

They therefore conclude that it is important to “mobilise the political support necessary for reform”.

Yet, how does one manoeuvre around political resistance, not just from the political elite unwilling to be taxed, but from the supporters of the politicians relying on political connections to thwart the efforts of tax collectors to audit them?

ACCOUNTABILITY

The other major question is how “taxation, accountability and state-building” are connected.

The Kenya Revenue Authority and government officials have been increasingly urging Kenyans to pay taxes because the money collected is what “builds the nation”.

However, how do individuals or groups that are taxed guarantee that the money generated from their taxes is used to pay for services, goods and projects that have immediate and long-term benefits?

Dr Odhiambo teaches literature at the University of Nairobi. [email protected]