Introduction
In Kenya, there are numerous Civil Society Groups (CSGs) engaged in various activities ranging from poverty alleviation to wealth creation. The various CSGs are not funded by the government but rely on donations and grants from foreigners.
The donations are in most cases from taxes in the source countries.
Why involve CSGs in tax policy?
Though CSGs may not be undertaking tax work, they should be involved in tax policies in the country because how governments utilize taxes directly or indirectly generate work for them that affect their work. Tax policies guide the mobilization of tax revenues in a country.
When governments mobilize taxes, they use the taxes for developed purpose and provision of services. Taxes are used to fund essential social programs, for wealth and income re-distribution purposes, and contribute towards economic growth.
Hence, there is a need to monitor government activities for accountability and transparency in the use of the tax revenues that are mobilized. The following is a detailed explanation of the reasons:
a) Taxes fund essential social programs
The funds used to fund crucial programs by the government come from tax revenues. The tax revenues are generated by implementing government revenue policies. The CSGs should assess tax policy implications on the government’s commitment to provide education, health, and other welfare programs. This should be assessed together with the country’s fiscal policy.
Also, the CSGs should assess the accuracy of government revenue projections to fund the annual country budgets. This is because sometimes politicians or those charged with budget-making inflate budgets for populist expectations where the budget appear to fund wide-ranging expenditure demands from their political supporters while it is fiscally not possible.
When a government fails to collect adequate tax revenues, budget expenditure will be reduced especially in cases where the country is in debt (local and international) and has little flexibility to borrow both locally and internationally.
Funding for social programs is often the first culprit as the government commits the scarce resources to other activities viewed more urgent such as service of debt repayments, pensions, civil service salaries, military expenditure etc.
The CSGs can engage in the tax issues regarding funding of social programs in the following ways:
- Work to ensure there are adequate revenues allocated for social programs.
- Advocate for expenditure policies for social programs that may require substantial funding.
- Propose specific taxes or other revenue sources to pay for social programs.
b) Taxes facilitate re-distribution of wealth and income
In many countries, there is a wide gap between the rich and the poor. Tax policies are used to influence wealth and income redistribution. The CSGs should work towards ensuring there is fair re-distribution of wealth and income in the country.
Besides, tax policies may contribute to the widening of the gap between the rich and the poor. This is because different categories of persons are subjected to diverse tax liabilities due to the country tax codes. This is irrespective of whether the persons are rich or poor, male or female, urban or rural, employers or workers.
Further, in many countries, the tax burden is dependent on the tax base. For example, the tax burden may depend on whether the tax levied is income or consumption-based. Many low-income earners spend a large proportion of their income on consumption of necessities such as food.
Moreover, consumption-based taxes such as Value Added Tax (VAT) and domestic excise duty may impose a heavier tax burden on the poor than on the rich. Income-based taxes are structured thus ensuring that the tax burden varies as income rises.
This imposes a heavier tax burden on the high-income earners possibly diminishing the income inequality in the country.
Therefore, CSGs should get involved in tax policy considering the wealth and income re-distributive role of taxes. The following are some of the reasons:
i. Distribution of tax burden
Information on the distribution of tax burden among various groups in the country will enable the CSGs advocate for objective tax policies in the country.
ii. Tax administration organizations
In any country, tax administration organizations are tasked with tax revenue collection. However, weak tax administrations organizations benefits wealthy individuals because the persons can effortlessly evade paying taxes through bribery and avoid taxes by structuring their tax affairs.
iii. Tax revenues collection and utilization
The tax revenues collected in a country and their utilization affect the distribution of wealth and income.
iv. Wealthy do not pay taxes
Efforts to reduce inequality using the tax system are negatively affected when the wealthy do not pay taxes. This results in lower-income group taxpayers bearing heavier tax burdens.
v. Consumption taxes
Taxes such as consumption taxes impose heavier burdens on the lower-income groups. Hence, any time consumption taxes are increased to fund poverty reduction programs such as health care or primary school education: the overall effect may be negative.
Therefore, CSGs should ensure that important equity subjects are part of the wider tax debate. The wealthy and high-income earners are concerned with the effects of particular tax policy proposals and have no regard about the broader impact of the policies on the wider society.
c) Taxes promoting economic growth
Taxes are used to develop the country. Hence, tax policies affect a country’s economic growth by influencing incentives to work, invest and save. Economic growth is also influenced by the regulatory environment in the country. However, no country exists in a vacuum. Activities in the global markets also affect the economic growth in the country.
The need to mobilize adequate revenues for economic growth demands efficient tax systems. However, the efficient tax systems my not necessarily promote fair re-distribution of wealth and income in a country. Therefore, tax decisions may result in a conflict between efficiency and equity.
The CSGs should work towards resolving the conflict between efficiency and equity goals by insisting on the establishment of appropriate balance between them. The CSGs can achieve this by participating in efforts to strengthen the country’s tax administration. The CSGs can also play an important role in the following:
- Assist in the evaluation of tax proposals to establish how the proposals affect low-income earners.
- Provide appraisals of tax proposals demonstrating whether they will achieve stated goals as anticipated.
- Advocate and monitor the sharing of economic benefits to the wider society.
- Ensure equity and economic goals are treated equally.
d) Enhancing government transparency and accountability
CSGs have broader concerns on matters of funding for social programs, re-distribution of wealth and income, and promotion of economic growth for the benefits of all citizens in a country.
To achieve this, CSGs should endeavour to improve government accountability and transparency. This will ensure government budgets are responsive to the needs of all citizens in the country.
However, CSGs may be limited in their capacity to monitor government accountability and transparency. Therefore, the CSGs may educate the public about transparency in tax policy. The public may also be sensitized on the ‘fiscal-social contract’ through open debates on tax policies.
Debates on the ‘fiscal-social contract’ may result in increased tax compliance since the citizens are willing to pay taxes to the government. The citizens have confidence in the country’s tax system ability to mobilize revenues for social services and programs.
In conclusion, CSGs should not shy away from participating in tax policies in the country but should be actively involved since tax policies affect their activities.
Thank you for reading the article.
Dr. Wakaguyu Wa Kiburi.
