Tax reduction is the cure
Times Tower, the Kenya Revenue Authority's head office in Nairobi. Increasing economic growth is one way of boosting government revenue without over-taxation.
Over-taxation can have negative consequences on individuals and on the economy.
The citizens may have less money to spend on goods and services, leading to decreased economic activity. High taxes can discourage entrepreneurship and innovation as individuals are less likely to take risks or invest in new ventures.
The challenge for policymakers is balancing raising enough revenue to fund essential government services and minimising the tax burden on citizens and businesses.
Some argue that simplifying the tax code and reducing wasteful government spending can help to achieve that. Others advocate a progressive tax system that taxes the wealthy at higher rates to distribute the burden of taxation fairly across society. Ultimately, the optimal level of taxation depends on factors including the size and scope of government, the needs of citizens and the state of the economy.
Stable business environment
Increasing economic growth is one way of boosting government revenue without over-taxation. The increased economic activity generates much revenue. Governments can provide a stable and predictable business environment, invest in infrastructure and promote research and development.
Broaden the tax base by reducing tax exemptions, credits and deductions. Then, more people and businesses will pay taxes, hence more revenue. Implement user fees and charges for specific services—for example, a fee for the use of public parks or road tolls.
Sell state-owned assets such as land, buildings and parastatals. That would generate a one-time revenue boost, which could be used to fund public services or reduce the budget deficit. Combat tax evasion and -avoidance—by improving administration and enforcement of taxation to ensure all pay tax.
Notably, the proposed doubling of VAT on petroleum products will be the single-most factor likely to have a domino effect on the cost of living. Lastly, have a lean government and reduce bailouts.
With a combination of these strategies, the government can add its revenues without over-taxation.
Mr Rajesh is the CEO, Collection Agency East Africa. [email protected].
