Picture courtesy of Community Eye Health Update
Kenya has a heavily taxed working class population. That is a fact, but we must qualify it. Those in formal employment i.e. those who pay their income tax through Pay As You Earn P.A.Y E suffer the most. They have to use their already heavily taxed income to buy goods which have been further taxed.
Indeed they are a captive group, with an easiest to collect a tax (any tax). From next month it will include the 1.5% levy towards the housing agenda of the Big Four. The llatest being that dividends from their investment will also be taxed, as if they were not.
That the president did not sign the bill into law postponing the 16% VAT by another 2 years and that the popular ‘wanjiku-like’ philosophy of NO to the 8% tax! failed are now history but may be we, the working class ought to reason his way too. He is facing a dilemma balancing the budget and having the best interests of Kenyans at heart, but not all. The working class are having it rough, they shoulder and bear and deliver the rest with their often frail income.
We now have austerity measures on spending and we have to raise something to seal the shortfall from excise duties etc. (airtime, data, chocolate, ATM withdrawals, cash transfers etc.). The austerity measures will in many ways again affect the working class the most. They were also the most likely to miss pay in case there was a budget shortfall.
I am no tax consultant and could be damn wrong in my submission but I will say it nevertheless: KRA sources allege only 2.3m (17%) of eligible Kenyans pay income tax or should we say file returns (which could be anything from nil to any other falsified figure). Failure to submit a return on or before the due date or submitting a payment return without paying the tax due – default penalty of Kshs.10, 000 or five percent of the tax due whichever is the higher and additional interest of 2% per month compounded. We are yet to see much in that direction for defaulters, those who cheat etc. Infact it was only the other year that KRA was in some way able to capture rental income, and still not all of it.
Many fear the penalty but not the fear of being found cheating. For civil servants, it is the fear of missing a salary in case one does not file promptly. Is this how patriotic we are?
KRA collects employee taxes directly from the employer. PAYE https://www.kra.go.ke/notices/pdf2017/PAYE_Guide.pdf thus is a method of deducting income tax from salaries and wages applies to all income from any office or employment. For those on formal employment they have no choice but pay upfront by checkoff from gross income rate ranging from 15% to 30% depending on income (range of taxable income under Ksh 11,180 to Ksh 42,782 and above respectively) Even if the net will end up zero. When an individual employee P.A.Y.E per month is over 45k, (Ksh 540,000 per year). A figure equivalent to what a few rich Kenyans or medium-sized companies pay as income tax https://calculator.co.ke/kra-salary-income-tax-paye-calculator.
I can tell you that the P9 we get is very sickening. Why? When one imagines the disparities in the amount one tried to save which often is Nil compared to the almost 1m paid to income tax. As if you owned some ka-3 or 4-star hotel somewhere. That same employee might be taking home a nil Net pay but does the income tax machinery care? Not a hoot! Yet the same employee pays VAT on goods and services like everyone else.
If most had the option of making income, meeting expenses then pay tax on the balance your guess is as good as mine- they will file Nil returns. All this while they guard their PIN which is needed to do most transactions nowadays.
Are we talking the same language Kenyans who fail to pay income tax? That is how patriotic we are! We have been told that if we collected just a third more of all eligible taxes we could be able to meet literally the whole budget.
It is an obligation for every registered business to identify its tax liability. Businesses (with exception of few ones like the contractors) file income taxes after meeting all expenses and declaring a profit. Yes, some even make claims from the taxman for refunds and often get it.
Countries we borrow from need their money back coz it belongs to taxpayers there. A tax returns ticket in these countries is the most necessary personal ID.
Nobody is too poor to pay a personal income tax. The British colonists made sure this was so. Paying tax is part and parcel of being a Kenyan. If we want to move forward let us pay taxes, and it is not the 16% or 8% VAT on fuel I am referring to but income tax genuinely.
This way we will transform our country into countries like Turkey which just a few years ago were very badly off. It is one of the fastest growing economies among OECD members during 2015-2025 at 4.8% per capita. Please take some time to study Turkish cottage industry, cooperative movement and you will appreciate we too can do it.
That is if we do not want to go the Greece way, the economy there shrank by 30% per capita, luckily it is recovering at 2.8% in 2018. For those who live there, you can be certain they hardly feel the growth. Kenya, on the other hand, projected growth 5.6% in 2018 and 6.2% in 2019.
I agree with the ‘cost of growth’ caption. The Mwangi-wa-Equity line of argument but I’m no economist, just a faithful tax paying Kenyan who might miss pay should there be a budget shortfall. Already public servants are conscious it will be a matter of when or how often but not if. Austerity measures have already kicked in and it has not been long. Kube, we will remember ‘the good old days’, only we did not realize it then. Now we know better. By the way, the lesson is that big i.e. let us appreciate what we have coz it can be taken away.
Meanwhile, I hope that the matter of employees in formal employment could be looked afresh. These are the heaviest taxed lot. Maybe it is about time we made our taxes more equitable and progressive so the experts say.
Just looking at the easier to collect taxes from a captive cohort will not yield much for this country. Worse still is burdening the same cohort with every other new tax. Let us consider giving them some tax relief here and there. There is a need for innovative ways to reach the untaxed, round up the defaulters where possible, and make tax evasion painful enough. More critical widen the tax bracket starting with may be 5% for those earning Ksh 11,180 or less instead of the current 15%. 30% should start somewhere after Ksh130,000 and above.