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September 25, 2018

KANYADUDI:Political dangers of new tax regime

There is widespread outcry across the country regarding the implementation of the new VAT law, which became effective from September 1. This law was passed in 2013, as correctly advised by Leader of Majority Aden Duale.

However, because the amendments passed during the last financial year to suspend its implementation, Kenyans thought that was the end of it. How wrong they were since suspending is not equal to repealing. The leaders took advantage of the citizen’s short memories to provide short-term amnesia so that pressure was deflated from them. Some weeks before the due date, concerns were raised by experts and civil society activists about the negative ramifications of the then impending law. Few people took the warnings seriously and largely the citizens went about their businesses as usual but the storm clouds were not gathering. Then the hammer fell and consternation was written all over the faces of wananchi.

The political leadership kept loudly silent plausibly because the President was out of the country attending the Forum on China-Africa Co-operation summit in Beijing. When it became clear the levying of VAT on petroleum products had ripple effects on the economy, people were stunned. It was not only going to be the motorists bearing the pain, but also the slum dweller using the tin lamp for lighting. The costs of basic commodity goods, including unga and Sukuma wiki were set to skyrocket. The effects of this taxation has united all strata of citizens from Kibera to Runda, Kariobangi to Lavington, and Mathare to Karen. The only cadre that is insulated from the painful fangs of the new VAT dragon are top government officials and state officers. State officers include MPs, Cabinet secretaries and judicial officers. Their monthly expenditure is underwritten by the state from the Exchequer. After paying, their salaries, the taxpayers also meet their transport, communication and household upkeep expenditures among others.

There exists valid and historical justifications for taxation. For beginners, the concept and practice of state as guarantor of liberties is the origin of taxation. The state as expressed in the government has a responsibility to secure the liberties of its citizens. The government requires resources to provide these essential services in exchange of individual citizen surrendering their sovereignty. These resources are gathered from the public through taxation. Therefore, the government has authority and right to levy taxes on its citizens through a determined process. This is so that it can meet its end of the bargain to the citizens on whose behalf it exercises sovereign authority. The early thinkers and practitioners of liberal democracy envisaged a process of taxation that was involving and participatory. They thus later coined the phrase “no taxation without representation”.

Therefore, while the state has legitimate powers to levy taxes, the citizens must participate in the process through presentation of petitions and memoranda. This they do directly in subtle ways but boldly through their representatives in Parliament. That is why Parliament has the role of making and oversighting the budget. There is the budget office to support the activities of the parliamentary budget committee in preparation of the finance policy. The Treasury initiates this process and completes it through the presentation of the finance bill. Once the bill is debated and approved, Parliament still has a key role in assessing whether the executive implemented the budget as approved. This it does through the Public Accounts Committee in its scrutiny of the annual reports from the Auditor General. This extensive process is established to ensure that the citizens take active role in the taxation as part of public resource management. Taxation is therefore both an economic and political exercise. Its politics determines the success of its economics, on one hand while on the other hand, the economic success of the process determines the level of political goodwill.

In the current tax situation, the government risks losing political goodwill from the citizens. The representatives seem to have been caught unawares or were bulldozed into approving the bill. Kenyans consider the new VAT oppressive and insensitive to their current economic conditions. Life was already very expensive occasioned by high inflation before the new tax regime. The economy was just beginning to pick up from the vagaries of last year’s divisive and prolonged elections. There are still legitimate concerns about the level of debt burden, both external and internal. Then there have been the high profile corruption cases unearthed in the recent past which paint a country of thieves in public offices. In the event of dwindling political fortunes, it is President Uhuru Kenyatta who will lose. He has invested heavily in building a legacy during his second term. Economics teaches us that heavy investment is laden with both high stakes in returns and risks.

The investment in the Big Four agenda is economic for the nation but political for the President. This investment requires political goodwill as a necessary and coefficient factor to succeed. If the political goodwill is sacrificed at the altar of prudent economics, then the Big Four agenda is in jeopardy. The President should, therefore, consider this issue of new VAT both as a threat and an opportunity to his leadership. Already, his absence has provided him with messianic moment. Kenyans expect that upon his arrival, he will make executive declarations that will remove the burden of this tax from their shoulders.

The citizens could be on the borderline and thus volatile. They are excited and easy to incite. The volatility of citizens is cannon fodder for anti-regime forces. In the course of time since last elections, Uhuru has thrust himself as the foremost sole political leader of the nation. The citizens have no one else to look up to in times of distress like now. The handshake neutered the opposition and Raila Odinga is now encumbered in the UhuRai brotherhood to raise resistance to the government. The situation is compounded by the glaring reluctance of the Jubilee leadership in Parliament to give direction on the matter. Social media is awash with bloggers extolling the virtues of this new taxation, but all in jest. The intention seems to be to get the middle class angry enough to rise and resist. If the middle class is sufficiently aroused for a political course, the regime will be in hot soup in Nigerian parlance.

Jubilee has made heavy investment in infrastructure and would want the citizens to celebrate the success. However, it is of insignificant use if there is no critical mass of citizens with ability to enjoy the goodies of such massive investment. If the government wants to continue enjoying political goodwill of its citizens, then it must put money in their pockets. Citizens with money are a happy lot and easily support their leaders. Political stability is more assured with a population with high liquidity than with super highways and SGR. However, a leader is best off with a monetarised economy where the population happily enjoys modern infrastructure with access to quality social services.

 

Kanyadudi is a political and public policy analyst


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