Wednesday, April 3, 2013

Taxes in Kenya

Apropos of nothing, I ran across some interesting data and commentary about tax in Kenya.  It’s a subject which is neither near nor dear to my heart, but which, in this instance, caught my attention because of some arresting statistics.

The document in question was the “Kenya Report.  Taxation and State Building in Kenya: Enhancing Revenue Capacity to Advance Human Welfare” (2009). 

Amongst the interesting points were the following.

In 2007/8, tax revenues came from the following: VAT 29%; pay-as-you-earn 22%; personal tax 1%; corporate tax 15%; withholding tax 5%; imports tax 12%; excise tax 16%. 

It would likely come as no surprise to hear that the Kenyan state is not at its most skilful when collecting revenue, and measured against the taxes that should have been collected in 2007/8, the state was able to collect the following percentages (measured as a compliance percentage): pay-as-you-earn 66.9%; excise tax 71.4%; import duty 49%; corporate tax 35.2%; VAT 56%.  To put it another way, the state was almost twice as good at collecting income tax as corporate tax.

Dr Attiya Waris and his co-authors estimate that in 2007/8, Kenya lost about 265 billion shillings, or upwards of $3 billion dollars.  About 40% of that hole was corporate tax.  And this in a country with a fabulously wealthy upper class, a growing middle class, and unconscionable inequality.

The authors believe that capital flight or theft from Sub-Saharan Africa over period of several decades since those countries received their independence has been approximately equal to aid flow to the continent (32), meaning that foreign investors, who rely on trade mispricing, tax havens, and western-sponsored structural adjustment demands.  This is a statistic which should be not only of great interest to Kenyans, but to the aid community, who might more productively turn their efforts to securing some measure of global economic and social justice such that countries’ citizens have some access to the wealth they create.

Waris propose that “Africa therefore can be considered a net creditor to the rest of the world” (32).  They cite a Christian Aid study which estimates “that developing countries as a whole [annually] lose U.S. $160 billion due to trade mispricing and false invoicing” (32).  In Kenya’s case, between 2005 and 2007, the country “lost an average of U.S. $17.6 million in tax revenues due to bilateral trade mispricing with the 27 E.U. nations and the U.S.” (32).

These are not trivial numbers in a country where many people struggle desperately to make ends meet due to high food prices, the failure of the state to pay salaries.  They serve as a reproach to the U.S. and the EU, two entities which pretend to embrace a humanitarian ethic.

Kenya experiences food shortages even though it possesses superb agricultural land.  Part of the trouble is that, due to the country’s orientation towards foreign markets at the expense of its citizens’ welfare, investors farm tea, coffee, and cut flowers for export instead of growing food for domestic consumption. 

These are serious issues, and not ones I heard discussed during Kenya’s general election last month.  One can only hope that the state—at the central and county levels—will set about doing their best to rectify matters.  I, for one, won’t be holding my breath. 

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