Tax questions to ponder in the advent of Covid-19

By Attiya Waris

In late 2019, I released my book – Financing Africa – which was an effort of 15 years of research and reflection. The book discusses how we can use financial systems, including tax debt aid and government business, to provide services to the people. It provides data and examples from across the continent.

Since February 2020, I have watched the Covid-19 pandemic unfold, and I have been reflecting on whether the information contained in my book remains valid in the current state of health emergency. I will let you all judge for yourselves, but I wish to unpack some common arguments I see being used in the online ‘corridors’ we now occupy more in this new era of physical distancing.

We have seen articles highlighting that 17 million Kenyans are one paycheque away from poverty. Data also shows that only 40 per cent of Kenyans over the age of 18 are registered to pay income or corporate taxes. The Kenya Association of Manufacturers (KAM) states that 2.8 million micro, small and medium-sized enterprises are likely to collapse, of which 1.8 million of them do not have registered tax numbers.

Tax issues and vulnerabilities seem more glaring during this Covid-19 era, compared to the end of 2019.

Personal and corporate income taxpayers

Generally, the tax bases across Africa are small. We have seen that only 40 percent of Kenyans over the age of 18 are registered taxpayers. In Senegal, the taxpaying population is only one per cent of the total population. In contrast, South Africa’s registered taxpayers are 99 per cent of the total population.

When taxes are perceived as a compulsory departure with hard-earned money that is being excessively collected from both formal and informal sources, citizens look for ways to avoid paying. Taxes should never make people feel a sense of injustice – feeling compelled to give money.

The wider the tax base, the more diverse the stakeholders engaged in the lobbying for tax breaks and exemptions, which is often referred to as the tax bargaining process. The process creates a citizenry that is more watchful in monitoring government activities, improving the overall transparency and accountability.

In Kenya, there has been no effort to increase the number of registered taxpayers. In fact, the national revenue agency is doing business as usual – collecting from the usual taxpayers. This is not proving fruitful.

Although there was a bill passed stating that the tax bracket would be expanded, its implementation has been slow, resulting in almost no protection of low-income earners in April and May 2020 when the Covid-19 economic crunch hit.

Constitutional principles guiding finance

To achieve fairness and justice in taxation, people must have a clear participatory role in determining the level of revenue collection and the manner of its redistribution. A government that is a true representative of its taxpayers values their trust and understanding. It upholds taxpayers’ consent to use the money collected wisely on behalf of the whole community and according to principles of distributive justice and the common good.

Unjust taxes are ultimately uncollectible, as taxpayers will use any means necessary to both avoid and evade taxes. At best, one cannot expect even just taxes to gain more than a grudging acceptance from the public. One cannot expect everyone to always be satisfied with taxation because it is always at best a sub-optimal compromise between competing interests and the resource requirements of the state.

Redistribution

In a scholarly article titled “Towards a Framework Convention on Global Health”, Lawrence Gostin and fellow authors argue that there are three conditions essential for a healthy life. They are a well-functioning health system that provides quality healthcare; a full range of public health services such as nutritious food, clean water, and a healthy environment; and economic and social conditions that are conducive to good health such as employment, housing, income support and gender equality.

There is a great need to ensure that the population enjoys conditions required for good health, especially in marginalised and underserved populations, such as those living in informal settlements and rural areas; those working in the informal sector of the economy; and those with pre-existing medical conditions.

An unhealthy individual cannot work productively, and this directly affects the economy. With the economy already greatly affected during the pandemic, there is even greater need to ensure that a majority of the population remains healthy to rebuild the economy when the pandemic ends. Furthermore, despite paying taxes beyond their ability, the stress of taxation and public finance is being placed on the unhealthy individual and his or her family and friends at grassroots level.

It is often the case that the poor taxpayer morale is linked to poor service delivery. But the oppo­site is also true, in that taxpayers’ morale and tax payments increase when benefits are tangible and more available.

Citizens and the state have to engage in a bargaining process, whereby citizens comply with tax demands in return for some influence over the usage of tax revenue.

The universal pension in Kenya is Ksh2,500, and yet parliament recently passed a law stating they would be eligible for a Ksh100,000 pension per month. In times of the Covid-19 emergency when healthcare workers are complaining of not getting adequate protective equipment, this move leaves a bitter taste in the mouth of all Kenyans.

Kenya’s tax-related behaviour leaves a lot to be desired. As detailed in my book (Financing Africa), they include poor compliance in the informal, agricultural and rural sectors; narrow coverage of existing tax instruments; and poor tax administration and collection efforts.

A good tax system should be equitable to all taxpayers. The duty of government is not only to raise taxes but also to use strategies around fiscal resources to ensure all members of a society grow and prosper.

The writer holds a PhD in Tax Law and Development and is the Ag Principal, College of Humanities and Sciences, at the University of Nairobi.