The Kenyan economy is indeed struggling. If you doubt it, do not look at how many fuel guzzlers are on the road; ask the common man (Mwananchi). But what do we need to do as a country? We need to reflect on our recent actions.
Our past actions or lack of are what has brought this country to where it is today. It is our current action or lack of that will take us where we want to be tomorrow.
This week on Thursday 4th April 2019, the President of the Republic of Kenya will deliver the State of the Nation Address. The country is pregnant with anticipation. We hope and trust that in that address, reflection on our past economic, political, social etc. actions or lack off will be captured.
Kenya must move on despite everything!
It is in this spirit that in this post we reflect on our country’s past actions and propose solutions on some of the things we think are causing problems in our economy. This being tax website we look at things that affect tax for tax is the blood that sustains a country. Without the tax, the government cannot exist and this would affect even the existence of this country called Kenya.
This article is a follow-up of our earlier article on gambling, interest rate capping and low tax revenues in Kenya. In this article, we offer eighteen (18) action plans as solutions to the current problem afflicting our economy. We offer this bearing in mind that we are shareholders in corporate Kenya no matter the shareholdings.
We warn you that some of the proposals are contentious.
GAMBLING
Gambling as we know it in Kenya today has that ability to mop up money from the market. No matter what little good there is in gambling the net effect is negative.
The following are some of the proposed solutions to this problem:
a. Outlaw gambling
The government should outlaw gambling altogether in the country. Gambling “business” owners ply on greed and laziness of the gamblers. Outlawing gambling will force Kenyans to engage in productive work to earn a living instead of engaging in games of chance. As greed takes over, the lazy Kenyans will work even harder.
b. Make gambling business unattractive
The government should make gambling business unattractive by increasing domestic taxes. If the government cannot outlaw gambling in the country (of course the human rights activists will be up in arms), the government should increase tax to such a level that gambling companies cannot survive in the country. The government should levy tax at seventy-five (75%) per cent, leaving twenty-five per cent to cater for all expenses, profits for the shareholders and corporate tax.
c. Make participating in gambling unattractive
The government should make participating in gambling activities unattractive by imposing a gambling tax of fifty (50%) per cent to compensate for their gamblers non-productive behaviour and a Withholding tax of up-to twenty-five (25%) per cent on all winnings. This will make gambling unattractive.
d. Tax internet gambling
The government should tax internet gambling. increasing taxes for gambling companies located locally will fuel mass movements to tax havens. The gambling companies will ensure that gambling activities will be available online. KRA should utilise its international tax office and income tax law.
Though the companies are located in tax havens, they are earning income from Kenya and they should pay tax in Kenya. The companies should have personal identification numbers (PIN) in Kenya. KRA should get the information on all their activities through the exchange of information agreements.
Also, KRA should utilize data from internet payment systems such as Paypal for taxation purposes. The gambling companies should be required to comply with the tax laws in Kenya. Otherwise, access to their gambling sites by Kenyans should be blocked by the Communication Authority of Kenya (CAK).
e. Government policies
The government should implement policies that guide on promotions and advertisements of gambling activities in the country especially to guard the very venerable in the society, especially children. All advertisements should have a clause on the dangers of gambling. This has been done with cigarette and alcohol promotions and advertisements.
INTEREST RATE CAPPING
Since the introduction of interest rate capping in Kenya in September 2016, the economy has experienced hardships because of lack of credit. The following are our proposals to this problem:
a. Remove interest rate capping
Though this has already been done through a ruling by the Commercial and Admiralty Division Court in March 2019, it was only done for a limited period of twelve months. Hopefully, this will give Parliament time to amend and come up with new legislation. The business of setting interest rates is vested in the Banking Act, not in the Parliament Act.
b. Policies on bank investments in government instruments
The government should put policies in place about how much of the deposits banks can invest in government instruments. This will force the banks to loan money to the local economy.
c. Encourage financial deepening
The government should encourage financial deepening through the provision of bank loan to locals especially the vulnerable groups. If need be, the banks should be encouraged to go back to the streets to hawk the loans. Renewal of banking licenses should be pegged to the number of loans the banks have advanced to the local population especially the vulnerable.
GOVERNMENT DOMESTIC BORROWINGS
a. Capping of government on amount of domestic borrowings
Parliament to put a capping on how much the government should borrow from the domestic market. This should be a percentage of the GDP.
b. Capping of government on external borrowings
Parliament should also put a ceiling to the government’s external borrowing.
c. Quarterly loan portfolio report
There should be a requirement on the government to make quarterly reports on its loan portfolio and how it is servicing the loans both local and international loans.
d. Quarterly investment report
The government should also make quarterly investment reports to the public on how tax revenues are being used. The reports should be on the tax revenues collected and how the tax revenues have been utilized.
TAX REVENUES
a. Detail measures to raise tax revenues
In every financial year, the government presents a budget from the public. In the budget, the Cabinet Secretary (CS) presents the figure he/she expects to collect per tax type. What the CS does not tell Kenyans is exactly how the money is going to be collected.
A farmer will tell you that they expect to harvest ten bags of maize because they have planted on a certain acreage, have planted certain types of maize, they have used certain farming inputs etc. The farmer will detail the efforts he/she has put in place or will put in place.
But the CS does not do this.
Essentially, the CS should detail how much he/she hopes to collect and what he/she has done or will do to make sure that they realize their tax revenue projections.
b. Reassure the taxpayers
The government and the tax authority should go on a charm offensive to meet the taxpayers and convince them why they should continue paying taxes. Currently, we are experiencing tax-paying apathy especially because of the numerous scandals in the country.
Today’s taxpayer is unlike yesterday’s taxpayer.
Today’s taxpayer is aware that any money lost by the government is his/her hard-earned tax money (whether paid or to be paid). Basic business sense dictates that for any type of investment, there have to be visible returns.
Taxpayers will not pay taxes and expect nothing in return.
The government should convince the taxpayers the measures being taken to ensure that money to the government (taxes or otherwise) is going to be utilized properly and how the money already stolen is going to be recovered.
c. Government core business
The government to do what it was elected by Kenyans to do – to develop the country by putting in place policies that ensure that there will be a country called Kenya tomorrow. Governments do not exist only to collect taxes. Likewise, governments do not exist only pay salaries. Government also exist to develop countries using tax money.
Therefore, the Kenyan government should not be over-exited with tax revenues from the gambling industry. The Cabinet Secretary for internal security has said on 1st April 2019 that all gambling licenses will only be renewed/issued on presentation of a tax compliance certificate from the tax authority. This is perhaps an indication that the gambling companies are not paying tax. The government should collect huge amounts of tax money from the gambling industry as a protective measure for current and future generations.
OTHER MEASURES
there are many other measures that the Kenya government and the great Kenyan people can take to prop up the economy. the following are some of those measures.
a. Facilitate the growth of the formal economy
In Kenya, formal and informal economies exist side by side. Currently, the informal economy is more vibrant than the formal economy.
Why?
There are many reasons for this among them lack of support of the formal economy by the government. The government should support the formal economy while encouraging the players in the informal industry to transition to the formal economy.
b. Central bank requirements
Some of the requirements by the Central bank such as the amount of money that one can deposit and withdraw should be critically re-examined and establish their usefulness from a global. This will enable the money from the informal economy to enter the formal economy.
Once the money is in the formal market, there will be a paper trail and the tax authority can take over. The NYS scandals were not as a result of lack of deposit and withdrawal rules in the banking sector. No. It was a failure in a different sector of the economy.
The government should adopt the same concept as that of allowing into the country goods whose custom duties and taxes have not been paid to enter the market with the full knowledge that this will help resolve unemployment problem while at some time the country will gain from consumption taxes (e.g. VAT and excise duty).
Rumours are all over that Kenyans are holding huge amounts of money in their houses. The government should explore way and means to get that money into the formal market and then tax it. Thirty per cent (30%) on that money should be good tax revenue for the government. Some decisions should not be looked at in isolation.
c. What is a government?
People in government should be schooled on what a government is. Some people in government do not understand that the Kenyan government is a management team to manage corporate Kenya. Kenya corporate entity has approximately 45 million shares and each Kenyan owns one (1) share.
Though people in government are shareholders being Kenyans, each one of them owns only one single share. Whatever management services they provide, it is not for free but they are paid for it. The great Kenyan people have entrusted the people in government to perform certain activities.
Stealing equity and loans is not part of the bargain.
There are very many actions that can be taken to prop our economy back to its feet.
This is our reflection being shareholders of corporate Kenya. We hope that adopting all or some of these proposals will go a long way in propping our economy back to its feet.
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