Marginalization and taxation inequality in Kenya

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BY DENNIS NDIRITU

In this world nothing can be said to be certain, except death and taxes – Benjamin Franklin, 1789

Taxation has been lauded worldwide as a crucial contribution to the realization of human rights. Over a long period of time, it has been the main source of revenue for the Kenyan government. This has increased over the years and peaked with a great reworking of the tax system to foster economic growth and self-sustain our development during the reign of former President Mwai Kibaki.

Taxation in Kenya is primarily in the realm of the two tiers of the government tasked with revenue collection. Mutakha Kangu notes that the constitution identifies two sources of revenue for the county governments: own revenue from taxation, fees and charges for services and goods and transfers from revenue nationally. On the other hand the national government is mandated to collect income tax, value added tax, Excise Duty and Customs Duty. The government imposes two, direct and indirect taxes with the former paid directly to the Kenya Revenue Authority while the latter are those levied on goods and services rather than on income or profits.

The 2019 working paper by East Africa Tax and Governance Network titled Inequality, Marginalisation and Gender Tax Justice Inequality in East Africa, traces tax inequality to the colonial era, which buttressed a system of inequality that was systemized upon attainment of independence. This legitimized inequality has however been unable to provide sufficient employment within its formal sector and its growth, overall, has not been wildly impressive over the years. This structure, the paper further elucidates has resulted in inequality predominantly exhibiting itself in the form of greater incomes being distributed upwards towards the rich at the expense of the poor, majorly due to the administrative preoccupation with allocated expenditures towards sectors instead of improving individual incomes because of productive participation within those sectors.

An interview with the Mr. Leonard Wanyama, a member of the East Africa Tax and Governance Network revealed that the implementation of a fairer tax system will automatically lead to sustainable development in the country. He pointed out that tax inequality in Kenya is manifested in various forms such as the agricultural sector, education, housing, energy consumption, gender etc. Tax is a key tool in the address of inequality in Kenya. It is with regard to this that Mr. Wanyama attributes tax as a right. The conversations on taxation can be viewed as a stepping stone to responsibility through scrutiny of the tax collection and the allocation and use of the revenue collected.

Taxation is a crucial contributing component of the realization of human rights as revenue is the main source of income for governments to facilitate their legal obligations to protect, respect and fulfill human rights such as the right to housing, healthcare etc. This therefore mandates the presence of a sound tax policy, which not only ensures prudent use of resources but also plays a fundamental role in redressing inequalities and shaping the accountability of government to the people. While most of the discussion on inequality has revolved around fiscal policy, there is need to widen this debate to rope in taxation policy. Mr. Wanyama decries the illiteracy of people on taxation issues. He notes that taxation is a complex area, understood majorly by a niche group of people such as economists, accountants, lawyers and tax practitioners, with majority of the populace interacting with the effects of tax such as the complexities of filing annual returns and effects of non-remittance of taxes as opposed to the technicalities of tax. This raises the obligation on the civic awareness of the public so as to remit tax knowledge to the public in a palatable manner.

A tax policy based human rights analysis strengthens the model of democratic governance through tax equalization and contributes towards a more equitable and sustainable approach to taxation. Hence, it is essential to put human rights at the centre of tax policy. Essentially, a prudent taxation system is governed by the four principles of taxation; Equity – Persons should pay taxes according to their ability to pay taxes; Certainty – The time of payment, manner of payment and amount of payment should be clear for every taxpayer and not arbitrary. ConvenienceTaxes should be imposed in such a manner and at the time which is convenient for the tax payer; Economy/Efficiency – The cost of tax collection should be minimal.

It is therefore prudent that tax policymakers should take into account the right to equality and non-discrimination and the principle of accountability in the design and implementation of taxation policy.

A prudent and sound taxation system is important in economic development and assistance in the address of inequality. This impacts greatly on the criteria used to prioritize revenue allocation. It is therefore very important that even as we strive to rationalize our taxation system, the criteria used in revenue allocation should be constantly reviewed so as to address the ever changing landscape. This coupled with prudent fiscal measures is the only way to improve tax morale and address tax inequality in Kenya.