Taxation is a means by which individuals, according to their ability, contribute to the common good of society. Common good is the main raison detre for the state. The power of the state finds its justification solely in the common good. Thus power should not be used to protect the interests of some to the detriment of others.

As citizens, we fail to practise justice if we fail to observe civil laws, especially by failing to pay our taxes. The state expects us to comply, voluntarily, with its tax code. For the sake of justice and good order, any act of tax evasion calls for some restitution, since tax evasion goes against commutative justice. The state must not only fight tax evasion, but must be seen to be doing so.

However, the virtue of justice does not compel us to obey unjust laws. Similarly, the state has no moral authority to impose and enforce unjust laws upon its citizens. What can be said about our taxation system?

1 Freedom to Kenyan Employees

The level of unemployment in Kenya is still very high. Worse still, there is a high incidence of under-employment. The curriculum of our education system, policy lapses, as well as bad governance has stifled the growth of entrepreneurship in Kenya, leading to the above scenario.

The abundant labour supply coupled with weak employment laws and their enforcement means many of our people who claim to be employed are wallowing in poverty. In the circumstances, the lack of social welfare and security systems means many, many Kenyans have their human dignity grossly violated.

Any form of taxation of employment income of low wage earners is indeed the taxation of poverty. Such form of taxation cannot be considered to be just. The authority that imposes such taxes cannot be said to be serving the common good of its citizens and its existence can be questioned.

Tax reforms instituted in the nineties were meant to shift reliance from direct taxes to indirect taxes. VAT was introduced in Kenya with a promise that corporate and personal taxes would be reduced. Although the top rate of tax has come down, there has been no commensurate increase in the disposable incomes of workers to cushion them from the effects of indirect taxation. The overall effect has been to impoverish workers.

Since 2003/04 to date, income tax from individuals has consistently exceeded income tax from corporations. How can Kenyan workers pay more than the businesses/corporations that employ them? One possible explanation is that the government is the largest employer. Its employees are subject to PAYE, but government ministries and state corporations do not pay corporate taxes. Salary levels in the civil service are pathetic, compared to the private sector. If civil servants are subject to PAYE, then this is candid proof of taxing poverty. Yet our civil servants are expected to apply themselves diligently and with commitment to their work.

It is common knowledge that the rate of compliance with our taxes is extremely low. In effect, the high rate of tax evasion makes the incidence of taxation on the honest taxpayers, majority of who are workers, much higher. A tax administration that is unable to combat evasion does not help in fostering equitable distribution of social burdens and benefits and does not promote social justice. In a certain sense, it robs its government, the moral authority to rule and govern the country. Although Kulipa Ushuru ni Kujitegemea, our fiscal policy and revenue management today makes it Kulipa Ushuru ni Kujidhulumu. This is especially the case where taxes collected are plundered in mega-scams by a class of people who also don't pay their taxes.

Our graduated system of taxing individual income is meant to ensure that we are taxed according to our ability to pay. Below the threshold of Kshs 10,164 per month, no taxes are applicable. Beyond that, the incidence of taxes increases progressively but stiffly so that at a mere Kshs 38,892, an individual is already taxed at the top rate of 30%.

Every Kenyan citizen is entitled to an equitable distribution of social benefits and burdens. The state must therefore be seen to favour especially the underprivileged, whose only resource is their work. Wage earners, who mostly do not have anything else to rely on for their sustenance, must be especially cared for and protected against exploitation, unjust wages and above all unjust taxes.

In order to shield vulnerable workers from unjust taxation, the floor limit for taxation will be raised to Kshs 30,000 per month. Any Kenyan earning less than floor limit will not be subjected to any tax on their employment income. The progression to the top rate of tax will be dampened so that only individuals earning more than Kshs 150,000 per month will have reached the top rate of tax. This measure will ensure many low wage earners are relieved from the obligation of paying income tax.

The additional disposable income will be applied partly to boost employees' retirement savings by raising contributions to NSSF and NHIF. This will mobilise a large pool of domestic savings for local investment. This pool of savings can be an invaluable source of funding for the capital formation this country badly needs. However, before the NSSF can be entrusted with workers' savings, appropriate safeguard measures will be put in place to shield it from political manipulation and ensure it is run independently and professionally. It will also be open to market competition once the pension industry becomes well-regulated. The law on retirement schemes will be amended to allow employees use their long-term savings as collateral for funds to be used in designated investments.

NSSF will not only be a retirement scheme, but will also be transformed to run a social welfare program that will see poor and needy families are supported by the welfare scheme. We will introduce monthly Family Support Coupons (FSC) to poor families with no means of livelihood as well as other disadvantaged groups who will benefit from state welfare payments.

2 Freedom to Kenyan Farmers

Majority of Kenyans earn their livelihood through farming. At present, agricultural inputs and machinery are free from direct taxes. The objective is to reduce the total cost of production. However, other operating costs render this economic activity less profitable. Whilst the farmers enjoy tax-free inputs the same is taken away from them through numerous levies by various state institutions. Most of these state institutions can hardly justify the need for the levies that they administer.

In addition, the imposition of these levies is not rational and is discriminative. How affordable are these levies to the peasants? Is this not yet another instance of taxing poverty? If our government is really and truly committed to poverty reduction, why would it tax peasant farmers through a multitude of levies? If governments of rich nations are subsidising their farmers, the worst our country can do is to tax its farmers.

In recognizing agriculture as the backbone of our economy we shall eliminate all levies imposed on farmers. Further, the next government will introduce Crop-Guaranteed Prices Policy to cushion farmers against fluctuating prices. Further, the government will re-organize and re-structure farmers financing to allow farmers access to subsidized finance from exclusive Farmer's banks and also specifically-farmers targeted programs in existing banks. The government will give rebates to Commercial Banks that will enter into these programs.

3 Housing Freedom

Our beautiful country is well known the world over for its beautiful parks, beaches, and its long distance runners. At the same time, it has the dubious reputation of hosting one of the largest slums known to mankind (one that has now become a tourist attraction). Housing development has been left to selfish commercial interests, yet the access to decent living standards, including housing is at the very core of human dignity and rights.

Failure by successive governments to effectively address this matter has led to an artificial shortage of decent and affordable housing, particularly in urban areas.

In finding a lasting and permanent solution to housing problem in Kenya, we will waive all taxes imposed on land-acquisitions, construction materials, and transfer of property for both large-scale developers of low-cost housing and first time purchasers of owner/occupier. The developers will be given free access to land. The government will strictly implement and enforce the regulatory framework regarding housing development.

Further, the government will give additional and sufficient funding to National Housing Corporation (NHC) to fulfil its statutory mandate. NHC will be facilitated to issue corporate bonds for additional financing.

4 Freedom to Charitable and Philanthropic Organisations

A good part of our social infrastructure such as schools, hospitals, universities, has been developed by faith-based organisations and private individuals and companies. There are very few Kenyans today who can claim not to have been a direct or indirect beneficiary of this initiative.

Yet today, a lot of willing donors are shying away from our country for lack of proper support by the government. Those already here are deeply frustrated by the lacklustre support they are getting from government. For example, the government expects missionaries to pay taxes on their stipends and housing facilities provided to them. Yet these men and women have given their life to serve humanity even in the remotest places where the government has never thought of. They have brought education, healthcare and most importantly, human and professional formation to many people who would have otherwise been condemned to an undignified standard of living.

Besides the faith-based organisations, many good corporate citizens have arisen to make a difference to the lives of very many helpless and abandoned Kenyans. Their good deeds neither get acknowledged nor supported.

The next government will waive taxes and/or give tax rebates to religious and corporate bodies who carry out the construction and sponsorship of social infrastructure such as schools, hospitals, water and sewerage provisions, roads, bridges, irrigation and power generation and distribution and the incidental and ancillary supplies thereto. The bureaucratic red-tape obtaining to stymie and stifle this sector will be eliminated.

5 Freedom from Nuisance Taxes

In addition to the harsh tax code that Kenya has, our citizens and entrepreneurs are faced with a barrage of levies, charges and impositions. These levies are imposed as direct user charges, yet there is very little to show for them. These levies have been used for the self-preservation and expansion of unnecessary bureaucratic governmental bodies. Despite collecting billions of shillings in fuel levy for many years, today, only 18% of classified roads can be considered to be in good condition.

The fuel levy, whose proceeds go to the Roads Maintenance Levy Fund, constitutes nearly 15% of the fuel pump price. Thus it makes fuel more expensive, with the attendant knock-on effect to many sectors of the economy. Yet going by the above government statistics, only 2 out of 10 vehicles that are on Kenyan roads can be considered to be on good roads.

The same statistics do show that our network of classified roads has not seen any meaningful growth over the last couple of years. It therefore follows that since the inventory of classified roads is static, the ever increasing fuel levy that has been around for some time would, by now, have covered a substantial part of the network to raise it to the required standards. If after all those years, only 18% of our roads are considered (for the time being) to be in good condition, what is the levy for? Considering the enormous resources sacrificed by the levy payers, is there any justification to continue the levy?

The same questions can be raised in respect of the other numerous levies we all face daily. Is this a fair and just form of taxation? Would we have been worse off if we did not pay the levies? Can any of the governmental bodies that administer these levies stand on its two feet and claim to have exceeded our expectations? Why should poor Kenyans continue to be impoverished by their own government?

We will discontinue all these levies unless there is justification for their continued imposition.

6 Freedom to Investors

Studies in many countries have shown that tax holidays are not necessarily the bait to attract foreign investment. On the other hand, the risk profile of a country as a destination for foreign investment is not assessed on the basis of the generosity of its government in dishing out tax breaks. Kenya's international risk rating is not diluted by the numerous tax breaks given to investors.

There are numerous economic benefits that flow from a healthy pipeline of foreign investment. Despite sacrificing significant tax revenues, our country is still unable to attract a respectable quantity and quality of foreign investment. Thus the investment made by the country through tax holidays is not yielding the desired returns, because the holidays are not complimented by a suitable business climate. Moreover, the tax incentives have been skewed to favour capital intensive investment.

The cost of doing business in Kenya is quite high, making the country less attractive to foreign investors as well as making it difficult for our local investors to compete effectively in international trade. The key drivers to the high cost of doing business in Kenya are corruption, high energy costs, poor transport infrastructure, lack of modern and cost-effective ICT infrastructure. The unmitigated risks faced by foreign investors include a high level of insecurity, a dysfunctional judicial system and bureaucratic red tape.

The next government will, in addition to the existing tax incentives, seek to address the lack of investment flows in to the country by systematically eliminating all the above constraints. In addition, my government will give incentives that will make Kenya the key commercial and financial hub in Africa. I will make Kenya an attractive place to conduct trade in services, such as Business Process Outsourcing (BPOs). This will also have huge benefits to our tourism industry.

Further, we will encourage Public Private Sector Partnership to enter into Build Operate Transfer (BOT) arrangements with the government on critical infrastructure such as public highways, ports and other utilities. This partnership has been successfully implemented in many developed and emerging economies like Spain, Italy and Malaysia.

And further, we will develop as free ports and holiday havens, Mombasa, Lamu and Isiolo, in the mode of Dubai, Montego Bay and closer home, Sun City in South Africa.

7 Revenue Sources

I firmly believe all the above measures are workable and achievable. They are not populist statements.

It is very clear to all Kenyans that bad governance has cost us a lot in many spheres of our lives. In this context, corruption, as a result of bad governance not only engenders tax evasion, but also leads to the misuse of the tax revenues collected. It is my conviction that it is possible to double the current level of tax collections without introducing new taxes or raising the existing ones.

Because of rampant corruption, those who evade taxes or plunder public resources never get to face the full force of the law. Today, there are nearly 650,000 people in remand homes and prisons. How many of them have been incarcerated for tax evasion or theft of public funds? How many of these are KRA officers who abet tax evasion or shamelessly steal the taxes that have been paid? How can the government and our tax administration explain the massive duty evasion that goes on at ports of entry under its watch?

With all the revenue leakage going on, it is not possible, at this stage, for the government to ease the tax burden on us. Consequently, it would be necessary to plug the leakage in order to improve revenue take. Radical surgery of our revenue collection agencies would be necessary.

Tax evasion is rampant in circumstances where the tax code and its administration are perceived to be a burden to taxpayers. Tax evasion creates an unfair competition to honest businessmen and other taxpayers. Honest taxpayers are greatly frustrated when they see rampant tax evasion which is not addressed. This makes voluntary compliance with the tax code very low.

Nobody would be encouraged to voluntarily pay taxes when they see their sacrifice going to waste through blatant waste and theft of public funds. Nobody would be encouraged to voluntarily pay taxes when the government does not deliver the goods and services that we are entitled to. The above scenario is compounded by the government's lukewarm approach to e-government.

The next government will promote accountability and good governance that will plug revenue leakage and step up voluntary compliance with the tax code. Our tax code will be reformed to make our tax system simple, fair, equitable and just to all. Tax evasion will become a capital offence. Our revenue management agencies will be overhauled to make them professional, efficient and accountable to its customers.

My government will rapidly deploy ICT capabilities by implementing a robust e-government structure. This will assist in detection and prevention of tax evasion and theft of public funds. It will also transform the civil service to make it lean and efficient in delivering public service, thereby encouraging citizens to pay taxes.

A Kenya Citizen Number (KCN) will be introduced for every child born. This will be the primary identification number that will be used for registration of citizens, taxpayer recruitment, voter registration, issuance of passports and drivers' licence, etc. KCN will be spread to cover all our citizens, in Kenya and abroad. That way, our citizens will never have to experience difficulties in obtaining passports, identity cards or voter's cards.

In order to improve the overall rate of compliance, tax collection will be decentralised and devolved. Local authorities and communities will play a greater role in revenue raising and disbursement at the grass root level. This only works well in a devolved government structure.

One prime source of national wealth is the natural resources that our country is endowed with, including land. In many ways, land is usually seen as a measure of wealth. Land, whether as private property or community property is a resource that should serve and benefit the common good of our society. Whilst private individuals are entitled to private ownership of land, its use must be to the utmost benefit of the greater society. On the other hand, distribution of land for private use must be done in a just manner. If this was the case, we would not be experiencing the violence that is affecting many parts of our country.

Without invading the right to private ownership of land, our taxation system must recognise the above matter and ensure land is put to responsible use. Land must be used in an environmentally sound manner as well as in a manner that benefits the society. Those who own land as private property must render it useful to society. Consequently, idle land will be subject to some taxation. In cases where it remains idle for too long, it would be open to compulsory acquisition by the state. This will not only generate revenue for the state, but will also put an end to the use of land as a political tool or gift, render land-grabbing a useless venture and also end land-related violence.

Ladies and gentlemen, a new way for this country is possible. A paradigm shift is possible. Kenya is a rich country. If we all play our parts and roles, Kenya will in the shortest time possible be a truly emerging economy. I am proud to be living in Kenya at this time of political and economic cross-roads. And I know that Kenyans will make a deliberate choice this year to choose a Kenya that belongs to all, all tribes, all faiths and all ages and a Kenya that recognizes talent and merit. A Kenya that allows its youth to be employed without asking for experience. A Kenya that you can actualize and live your dreams.

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One small problem
written by Hon , September 22, 2007

Last paragraph of Kenya being at cross-roads.
'A Kenya that will employ youth without asking for experience'. I see, so he is encouraginng youth who think they do not have to do anything but be book-sworts and get a job. -[Edited by Moderator]
The youth need to know that they ought to combine academia with real life. What is wrong with them giving few hours outside school to learn from those in the trade, or volunteer, or serve? Hapo amenena upotovu pekee yake. Wale vijana watatoka wamefundirwa maandishi ya vitabuni, na hivyo ndo tutaendelea kukosa wananchi wenye fikra za masuluhisho.Haiya!

Note: I only read the first and last paragraphs, for a good leader should know better to state his main points in those two.

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@Hon
written by Don , September 23, 2007

You are very witty :) What you allude to is the same thing I see as a "nanny" State.

What with those monthly coupons to the poor? About 21 million Kenyans are classified as poor. Assuming you give K1000 a month to each of them (=K250 billion a year). Given that running our bloated government currently takes another K400B, we already have a budget deficit of about K200B before even thinking of development expenditure. Now factor in the tax cuts and a raft of his proposed measures, like free education, health, etc, and you have a disaster of a government that will have to borrow silly both domestically and internationally. I need not reiterate the consequences.

Interestingly, he proposes to plow most of the tax cuts into social security, so the multiplier effect some people claim is quite unlikely.

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pro-business
written by emmo opoti , September 23, 2007

It would be very useful if we could discuss this without getting into invective, or using emotive and distracting language like 'nanny state' and 'welfare state', 'populism' etc. What exactly do those terms mean anyway? Let's try address the proposals themselves.

This will be the first time in the history of the world that someone proposing tax-cuts is going to be looked at as a populist. I am also surprised at Don because I thought that like me he was pro-business, and for smaller government.
I do not believe the Kenyan government spends money wisely, the Kenyan mwananchi would spend that money so much better.

I am not batting for Kalonzo, indeed it has already been pointed out that he has close to no chance of winning at the election. But he seems to me to be on to a good thing here. It is not anywhere near a perfect proposal ( the definition of poor for example may need to be worked on - 30,000 in Kilifi is a good income, not so in Nairobi ) and some of the proposals are likely to be staggered or delayed altogether. That for me does not still take away from the fact that I think Kenyans should be given more control over their money, and the State less of it.

Don, talks above about the borrowing. Well, Don we are already borrowing heavily as it is, and most of that money is going towards funding what are in essence excesses, e.g. building a new VPs residence, the MPs remuneration, building a new State House, building afresh at Parliament, the massive wastage in CDF and so on. All this can be severely cut back on. Our government lives like it is a first-world government, and the people bear the brunt of it.

Kalonzo also does not suggest that all the savings are paid out to the customer, a large chunk of it is to be saved (50%).

I have not thought about this too long, but there must be ways to plug the shortfall from these tax cuts. From the top of my head I would suggest, that State Corporations pay taxes, that government organisations get leaner, that businesses are given incentives to corporatize (too many sole proprietorships and business companies), that taxes on things like alcohol and cigarettes are increased and that taxes on the top earning Kenyans are increased. Remember our MPs suggesting that they have many mouths to feed, and how that justified their wage increases? Well, dependency ratios are really really massive across the pouplation and the burden on the providers could do with some easing.

Finally, may I say that poor Kenyans have shown a real resourcefulness with even the little that they earn. Let's give them some credit, the extra income will only serve to increase their living standards and create more scope for small businesses to start-up even if these are only informal.

Don,
This move will not necessarily lead to an increase in borrowing, or inflation. Our currency is floating free and our borders are open for trade. There will be a reaction to the increase in disposable income, there will be inflation, but it will not be harmful. Just a one-off adjustment as the increased demand stimulates output and economic growth.

P.S. I agree that the proposals would look much better without the part about starting a dole.
Kenyan Stats

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written by Timothy Wainaina , September 23, 2007

Seems to me like a tricky way of avoiding the campaigns by civil servants and teachers for pay hikes!

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don\'t believe the hype...
written by Don , September 23, 2007

Emmo,

I think you missed the gist of my comment. Where did I advocate for a big government? In any case, it's precisely my opposition to a bloated government that I poke holes into Kalonzo's proposals, because they would enlarge our government beyond imagination. Do I read it right that you are offended by our criticisms of Kalonzo tax cut proposals, like someone who was involved in their formulation or sympathetic to those who crafted them? My approach to debates is to detach from the emotive aspects, that way I can put on my objective lenses.

Your support for tax cuts would resonate quite well with the ideologies of the Republican Party's far right. I shudder to imagine that you believe in such dogma. As far as I'm aware, there is no heavy tax burden problem in Kenya that stifles business. I used to believe in the hype about Kenyans being overtaxed until I experienced the tax regimes of North America and Europe, and studied other tax systems in Latin America and Asia. My conclusion is that the Kenyan tax regime and rates compare quite favorably with other economies around the world.

Let's deal with the real issues. For starters, most businesses in Kenya, including the very wealthy corporate moguls, don't pay taxes so they are the least affected. Kenyan corporate world are known cry babies, not because they are overtaxed but to avoid paying taxes and upping their game. What we need, in my opinion, is to broaden the tax base to ease the tax burden and review the tax codes to address the incidence and distributional effects of taxation. For example, easing the burden of the heavy taxation on petroleum products, especially paraffin, would go a long way in making the cost of doing business cheaper, bring down the cost of living, and conserve our forests. Further, eliminating the "hidden" taxation on agricultural industry, which come in the form of indirect taxes on inputs, spare parts, transport, and services, among others, would be a boom to the revitalization of the sector. Those are just a few examples.

The truth of the matter is that we never considered the close linkages between our economic sectors when devising the tax codes. This has led to, what I call, tax "sprawl", with debilitating consequences.

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written by emmo opoti , September 23, 2007

Don,
If you remove the little section about social scurity payments, I think that this here is a proposal for small government and for the transfer of control over people's lives away from the government.
You have achieved another first here. Kalonzo would be the first tax-cutting, right-wing populist in an African country! Employed people in Kenya are too few to swing an election, they are not a populist's constituency.
Any Kenyan will tell you that the government is a very poor manager of public resources, and if we can make them as small as possible then we are doing everyone a favour.

I was not involved in crafting this document, but I think Kalonzo has unleashed a superlative effort here, and an example for the other candidates. I hear you on your suggestions about the corporate tax thieves, that is the where the replacement for the wananchi taxes will come from.

Nice try about the American right, which to my mind encompasses most of them from GWB to Obama and Clinton. I do not take any inspiration from them, and more importantly perhaps, they would never advocate tax cuts at the bottom of the pile, especially if these would have to be paid for by increases at the top!!

If we do not cut taxes on those at the bottom, are we going to raise their salaries? Teachers, nurses, lecturers, etc. All of them are agitating for wage increases, here is a neat way to give it to them.

Would you be happier with a threshold of say 25,000? What of the suggestion that discrimination according to region be applied? Do you agree, that there is a need to lift the tax burden on this class of Kenyan?

P.S. Does anyone see parallels here with Singapore's compulsory savings scheme?

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written by Don , September 23, 2007

Emmo,

I'm afraid that we are getting into a circular argument here. Check my posts for the term "populist" and alert me where I used it. The term "nanny" state is very popular with some wing of the GOP, so no invention there. In my arguments against Kalonzo's proposals, all I'm saying is "cut taxes all you want, but only after ensuring that leakages have been stopped and the tax base broadened!" i.e. Plug existing holes first before you dig another. You people make it sound so easy when talking about nabbing tax cheats, not in the present Kenya I'm afraid. All said, I disagree with your assessment and maintain that Kalonzo's proposals will lead to a bigger government. Let's agree to disagree on that point.

Now, your linking tax cuts to wage increase is strange to me. Agitation for wage increases stem from inflationary pressure and changes in the cost of living. Don't tell me you are going to cut taxes every time there's an increase in inflation or cost of living. The teachers, nurses, etc don't demand high salaries because of heavy taxation. In fact, and I stand corrected on this, if you ever seen a teacher's, lecturer's, or nurse's payslip, the amount of tax is the least of their worries.

I'm indifferent to tax thresholds, rather, I'm for graduated progressive taxation. Every Kenyan earning an income should pay taxes to their "capabilities." My problem with our tax system is that we're being robbed from several fronts. Our income get taxed yet we still have to pay VAT, service charge, etc on almost everything. Add that to the thieves evading taxes and raiding our treasury and there you have an answer to why the tax burden feels too heavy. It's not that we pay too much tax, but pay for services which are not delivered and, hence, no relief provided. To me, how to address this is of more relevance than cutting taxes.

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Hmm
written by Hon , September 23, 2007

Interesting. For one who is rarely interested in Kenyan issues, I support Don. Cutting taxes will not benefit the bottom rung Kenyans who are a majority. I even think hiking Taxes might help curb the wealth gap between the rich and poor.

Maybe the big govt does not run its coffers efficiently, but allowing Kenyans to take charge, in a place where accountability has never been heard of worries one. With this, as bad as it is now, job securities will hit another high, unions will be thrown out (no collective bargaining for workers creating Walmart scenarios) deregulation will invade the country's economy, and I fear for 90% of Kenyans. Lets see, with the technological advances new enterprenuers will seek all shores for cheaper raw materials and labor. Payroll is always the biggest burden of an enterprenuer, but outsourcing can solve that. Why would such an enterprenuer allow themselves to be tied down by pension, healthcare et cetera when he/she can slash all that and pay bigger returns to his investors or rip profit?

Unfortunately, consumers to afford these goods may not be available. So this means our target is to be exporters that leave Kenyans living like dogs.

Hike taxes, let the govt ensure service is provided, create some sort of wealth for the middle class before we hit the supercapitalist highway. The rest of the world is racing there, but a time to reckon is coming too!

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written by Hon , September 23, 2007

I meant job insecurity, not security.

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written by emmo opoti , September 24, 2007

Don,
Every last candidate's manifesto includes plans for govt. expenditure on infrastructure. Please point out to me which of Kalonzo's proposals specifically will lead to bigger government. I cannot see them.
Also, your argument about the need to get the holes plugged before tax cuts is a valid one, but hardly relevant because the candidate does not pledge to cut taxes from day one. Reading the article would make it clear that he sees areas where taxes could grow, even as the burden on the lower middle class is diminished.
I am sure KRA can broaden the tax-net, and as Kimani Njoroge says, even cut their budget which is fully 1/3 of total tax revenues. There's enough savings to be drawn out of the system, and the Waweru team are improving every day. Add to this the revenues from newly corporatised SMEs, and from taxing state corporations, and from increased taxes on cigarettes and alcohol and from increasing slightly the tax rates on the higher ups and you will have more than enough to plug the shortfall. Factor in the increased revenues from economic expansion after the tax-cuts and the books are on the way to being balanced. A rough sketch for sure, but one that demonstrates these ideas of the ODM-K man, needn't be rubbished.

I am glad you declare that every Kenyan should pay taxes to their capabilities. That is the whole point about tax thresholds, they protect those who do not have that capability, hence my question, below what income level would you suggest people do not have the capability to pay taxes.

On Wage increments
A tax-cut and a wage increase, especially for civil servants amounts to the same thing. They both increase the take home. As we speak, vast numbers of Kenyan civil servants are asking for pay-hikes. These pay hikes are not just necessary, they are also going to be expensive. I suggest that tax-cuts may stall those demands for a while.

Maybe we have some experts on supply-side economics here, who can prove that the losses to government revenue will be more than made up for in the expansion that follows from the tax-cuts? I hear that is somewhat contentious.

One thing I am sure of though, the thugs in parliament are in no way qualified to handle a budget the size of the one they manage. Individual Kenyans will do this much more efficiently.

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A balanced approach
written by pndiangui , September 24, 2007

I support Kalonzo on certain grounds;
I especially see some imaginative thoughts from him on Build-transfer-Operate in infrastructure development and speeding up legistration on Asset-backed securities and Infrastructure bonds. The high liquidity in the country and even globally chasing very few assets would find its way here especially with some tax incentives for those investors.
On Tax cuts I am a bit skeptical on the thresh-hold being upped to 30,000. Due to high differentials in the cost of living in different urban centers due to passed extreme centralized governing, I would propose regional based corporate tax-cuts that would also spur the movement of businesses to other regions of the country. For Individuals I see less than 15,000 being a better thresh-hold for taxation of 12% and below.
But even most essential is the ‘formalization’ of many SME’s which can be greatly spurred by Tax cuts and a more efficient payment system that provides tax incentives for cashless payments.

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Post script
written by Sijui , September 24, 2007

The previous post should be attributed to me and just to clarify one point I've made, I include in condemnation of the tax system all the levies imposed on us including income tax i.e. what Don refers to as 'tax sprawl.'

Going off on another tangent, I am floored that to import my vehicle I will be levied 75% of the vehicle's value through duty, VAT and excise taxes!!!!! This is supposed to help stimulate local vehicle assembly and manufacturing yet new cars in Kenya cost 200% of the MRT?

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From Sijui
written by a guest , September 24, 2007

"The additional disposable income will be applied partly to boost employees' retirement savings by raising contributions to NSSF and NHIF. This will mobilise a large pool of domestic savings for local investment. This pool of savings can be an invaluable source of funding for the capital formation this country badly needs. However, before the NSSF can be entrusted with workers' savings, appropriate safeguard measures will be put in place to shield it from political manipulation and ensure it is run independently and professionally. It will also be open to market competition once the pension industry becomes well-regulated. The law on retirement schemes will be amended to allow employees use their long-term savings as collateral for funds to be used in designated investments."

BRAVO, BRAVO!!!!! But sir surely we can take it further than this? Don't limit to NSSF and NHIF, broaden public and private investment vehicles for the mwananchi!

There are other of his policies I am wary of such as Price Guarantees for agriculture........I don't believe these have been shown to work ANYWHERE, also dubious about his social welfare program......BUT he has some substance.

Don, pardon me for being presumptuous but it appears you have
a) never run your own business
b) never had to pay income tax in Kenya.

If you had then it would be clear there is NO comparison between the tax levies in the U.S and Kenya. I will give you a personal example......my current U.S. salary entitles me to a 10% tax rate, cumulatively at the end of the year that is a hefty chunk but it is mitigated by the fact that I receive minimum deductions on a monthly basis so whilst I end up owing Uncle Sam at the end of year my monthly tax savings allow me to use my money for investment and consumption that can offset my payment to the tax man. I will be based in Nairobi shortly with a commensurate salary, right off the bat GOK will hive 30% subtantially reducing my purchasing power for either investments or consumption, in the unlikely event that I am eligible for a tax refund at the end of the year (hopefully I will try to get as many rebates as possible e.g. mortgage) it will be a song and a dance getting even a cent from GOK! I will not dare delve in to the tax implications for the business I will be involved in.

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written by Inquisitor , September 24, 2007

By boosting productive activities, tax cuts do lead to economic growth. When you earn less than, say, a full dollar on an investment, you'll be less inclined to invest your money than if you got the full dollar back. Lower taxation leaves more disposable income to invest and also means greater returns on investments. Empirical evidence has shown that a cut in the capital gains tax has led to higher revenues (though the income tax is a less clear-cut case.)

The main issue is deficits - governments tend to spend whatever they rake in, and a good deal more.

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written by emmo opoti , September 24, 2007

Don,
Our taxes may compare favourably to what you get in Europe say, but the situation is much worse for the Kenyan consumer because there is no delivery! So what is prevalent across sectors then is a double taxation, we pay for water treatment but still have to incure hefty energy costs (will write on that soon) boiling water, we pay taxes ( but have to take children to very expensive schools to get a decent education, we pay taxes ( but have to hire private security firms), we pay taxes ( but have no decent public transport), etc. In my city we have even taken to refurbishing our roads ourselves.

Another useful point. The GoK often lacks the capacity to utilise what it intends to spend. How much from the MoPW goes back to the Exchequer every year? Remember the HIV-AIDs funds that the Americans were threatening to take back because the MoH could not spend it? Now imagine that money in wananchi pockets.
Finally, Parliament has proved totally incapable of administering our taxes. Giving them even less to play with will promote their spending it better.
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Don,
In my previous comment I meant to say that a tax-cut and a wage hike are the same thing to both the government and the civil servant/ state employee. Firstly, because of their effect on take home pay, and secondly because they both reduce government revenue in the immediate.
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Ndiangui,
Please describe the effect of boosting cash-less payments.
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Sijui,
Protectionist measures for farmers are a global norm now. Kibaki seems to be reading from the same script. I am afraid this is not mere populism, our farmers have to be assured of good incomes otherwise they will be migrating to the cities in even larger droves for sure. I have always believed the problem is partly one of distribution, and partly due to the import/export cartels that depress market prices. See Sugar Barons, Maize and so on.
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Inquisitor
Bravo! Kenya's resourceful lower middle classes and working classes( we have had house-helps who ran businesses) will most definitely invest part of their extra incomes. Such organisations as merry-go-rounds and such will also see boosted incomes. Given that many other Kenyan problems are related to poverty (e.g medical care, insecurity), I would bet any day that giving the mwananchi greater control over his purse will lead to a boost for the entire economy.
Your last point about governments' propensity to spend is borne out by the actions of the present government, most vulgarly in the new cars for ministers, fishing boat to naval ship conversion, salary hikes for MPs, CDF and so on.
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Sijui, Ndiangui
What do you think of a gold-backed shilling? I am really afraid of what the collapsing dollar will do to not just the world economy, but ours as well.

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from Don
written by a guest , September 26, 2007

Emmo,
On tax
The trouble with many of the proposals from the candidates is that they will lead to high-tax, high-spend governments. All arguments about whether the spend works aside, this in itself magnifies any inflationary effects. If an employer needs to have a worker make an extra bob a week in order to keep him happy, he has to pay them very nearly two bob a week. Plus employers taxes. This means that he must increase his prices so that he charges something around an extra two bob fifty for that employee's work then.
A 1% net pay increase causes factory gate (and hence retail) prices to rise between 2% and 2.5% because of the action of high taxation on wages.

The effect of tax cuts will be to reduce these pressures on employers (especially the government) and I am yet to see an argument here opposing it. I think what we have is a knee-jerk negative reaction because it is a Kalonzo proposal, more than anything else.

Amir, you were on the right tangent, until your penultimate statement. I think it's disingenuous to impute ulterior motives on others based on innuendos, simply because they hold a different viewpoint from yours. I'm neither a politician nor a stakeholder in their politics, so it'd be foolhardy for me to counter Kalonzo's proposals merely because it's Kalonzo. All I care about is Kenya. Since Kalonzo is an important opinion leader, I care about what his plans or ideologies portend for Kenya and I. Mark you, implementing his ideas isn't only contingent on him being elected the president. I'll get back to your points later.

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written by Amir Ibrahim , September 26, 2007

Emmo,
Maybe we should stop trading in dollars for as many commodities as is possible. We certainly are a net-oil exporter and the more the price of oil rises and the dollar dips, the more it is in our interest to have this sorted out.
On another thread, a respondent reported that we have $4 billion US in reserves, a tragedy waiting to happen there, especially with our debt commitments. Could easily end up defaulting.
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On tax
The trouble with many of the proposals from the candidates is that they will lead to high-tax, high-spend governments. All arguments about whether the spend works aside, this in itself magnifies any inflationary effects. If an employer needs to have a worker make an extra bob a week in order to keep him happy, he has to pay them very nearly two bob a week. Plus employers taxes. This means that he must increase his prices so that he charges something around an extra two bob fifty for that employee's work then.
A 1% net pay increase causes factory gate (and hence retail) prices to rise between 2% and 2.5% because of the act of high taxation on wages.

The effect of tax cuts will be to reduce these pressures on employers (especially the government) and I am yet to see an argument here opposing it. I think what we have is a knee-jerk negative reaction because it is a Kalonzo proposal, more than anything else.

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AUUUUUUUUUUU!!!!!
written by kendirangu , September 26, 2007

Some simple questions we need to ask ourselves as the foundation for this debate is why the hell are we paying taxes in the first place ?

Among many other reasons, the main one is to support the govt and it's activities. Now if with the current tax regime we cannot maintain a balanced budget does reducing tax help the cause or aggravate it ?

In finding a lasting and permanent solution to housing problem in Kenya, we will waive all taxes imposed on land-acquisitions, construction materials, and transfer of property for both large-scale developers of low-cost housing and first time purchasers of owner/occupier. The developers will be given free access to land. The government will strictly implement and enforce the regulatory framework regarding housing development.

So how does the govt pay for the land surveyors expenses , documentation, archiving and office and other ministry of lands expenses ?
Seriousy, you go out and have all this tax cuts, make all this promises and then how do you pay the civil servants and meet govt expenses? Kalonzo will lead us to the den of western barons with a begging bowl in hand, just when we were seeing a glimmer of hope. Besides for some of his rosy policies to work I guess he forgot to mention that it is critical to cut some government spending.... probably some civil service reforms are essential too.

Mzee Kenyatta was notorious for his vulgarity against free lunchers and indeed it was with good light. Never to give anything away for free because everything has a cost. It is important that we do not fall for the fallacious belief that Warren Buffet calls 'the divine right of the womb'
Simply because you are too lazy to work your way into a decent living does not earn you the right to handouts and a tax free life. He is opening up a can of worms for KRA to track more sophisticated tax evaders

Somebody ought to get the poor guy a copy of 'Atlas Shrugged'

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NDIRANGU
written by Stephen Wainaina , September 27, 2007

Now if with the current tax regime we cannot maintain a balanced budget does reducing tax help the cause or aggravate it ?

Sad to say but Amir's statement above seems to apply strongly to Ndirangu here.

has it occured to you that we cannot maintain a balanced budget
a) because of widespread tax evasion
b) because the government misuses its money
c) because of mis-allocation

So how does the govt pay for the land surveyors expenses , documentation, archiving and office and other ministry of lands expenses ?

You think cost-sharing in hospitals is just, but that it is not applicable here? Land buying is not even a common activity, let people pay the fees!

The question we should be addressing here is whether or not it will be possible to recoup the revenue lost from the tax cuts, through the economic gains of said tax cut. Did he forget to mention the civil service reforms, or is that just the sort of thing politicians need to hide before an election. No doubt, your views of Kalonzo have prevented a fair appraisal of a policy we should try suggest to Kibaki to implement next year.

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written by Stephen Wainaina , September 27, 2007

Let's just say that when you live in a country with politicians like ours, it is best that they get as little from each of us in taxes as possible, and especially for those who have least to give up.

All the government programs that should be run on those taxes are not available, or we have to pay bribes to enjoy. So Kalonzo is right, give the poor their money.

Welfare payments
Common sense overules this, and the increased incomes in the lower middle class, should mitigate the need for this as it diminishes the dependency load.

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