Kenya Economy needs Tough Tax-Justice Stimulus

Published on 12th February 2008

When Kenya's government spokesman Dr. Alfred Mutua asserted that Kenya's budget is 95% financed by domestic revenue and hence will not be bullied by anti aid threats; I wondered whether he was aware that the generators of the revenue were directly affected by post election crisis. Some companies are downsizing and those that are not; are faced with a 40 - 50% excess capacity. When we read of the perishing of over 1000 Kenyans and 300,000 displaced; we ought to realize that Kenya is loosing in terms of man-hours and productivity. Even in the so called peaceful zones of Kenya, traumatized workers are underperforming. As we seek to get a political solution to our crisis, we should brace ourselves for another monster; a thirsty, hungry government - starved of taxes!

Depending on how the political solution pans out, the government is likely to get tempted to increase taxes to recoup its revenue losses. This is likely to hurt the business community even more driving them to engage in further layoffs, relocate and or simply ground to a halt.

The Kenyan finance ministry should consider recommending a broad-based economic stimulus package that can assist the business sector and help restore the confidence of investors and consumers. The package should focus on reducing Pay As You Earn (P.A.Y.E), Corporate income tax rates, Excise tax rates and Value Added Tax (V.A.T). The point for doing this will be to resuscitate the economy through breathing fresh oxygen in the lungs of productivity and get systems back to optimal operation.

The quest to revive Kenya's economic impetus also calls for an urgent focus on justice related issues as far as ownership of land and property is concerned. The impact on post election violence on non formal, Small and Medium Sized businesses is yet to be assessed, and yet it's the one that supported the bulk of the internally displaced people. The Kenya parliament should recommend a package that will involve a truth and justice commission. The package should focus on the historicity of the problem and possible compensation mechanism that can help build the confidence of Kenyans to be able to settle in any part of the country.

Our policy makers should be wary of the chest thumping approach favored by Dr. Mutua, and employ a long term view to likely economic and social outcomes to a starved government. If it's true that the lower class reacted more violently than anyone else on the disputed presidential poll results, then one ought not to drive more Kenyans to the road to poverty. Any political solution must recognize the importance of giving each one equal opportunity to exploit our resources to create wealth. We can stabilize the Kenyan market by cutting taxes, addressing justice and insecurity, toning down extravagant political free-gifts and opening up Kenya for Kenyans. Wealthy Kenyans will make a wealthy Kenya.

The business community on the other hand ought to review its aloofness to matters of civic nature. Kenyan businesspersons have always left governance, rule of law, and constitutional discussions to Non Governmental Organizations. Our business community prioritizes sinking money in 'helping the poor' without investing in addressing cause-effect relationship. The 'democratic implosion' we have experienced is pointer to the fact that we glossed over the importance of building Kenyan-history-sensitive institutions, and simply superimposed foreign models. Now that we know, it's imperative that the business community invest heavily in supporting Kenyan think tanks that promote cultural and institutional innovation.

It is precisely because the Kenyan budget is supported domestically, that it has become difficult for any politician to simply ignore the wishes of Kenyans. The government must reduce the tax burden for each one to stimulate productivity.

 


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