"The budget speech this year was underwhelming. Looking at the Finance Bill, which contains the tax code, it's so complex & imposes a great burden on firms, house holds & working people." @IEAKwame 👇🏿 
The most profound issues that arise from this year's budget statement are on the revenue raising side & it's implications for Kenya's tax code. Four things stand out. #Followthread
1/4 It is clear that with a huge & growing burden of the public debt, the govt. also faces an acute shortage of revenues. The total debt redemption & interest payments account for more than half of the collections from the revenues mobilised through taxes.
Cont. That debt & interest repayment of Sh 904 billion for this year is equivalent to 10% of GDP for 2019. In essence, the revenues are chasing expenditure and despite the best efforts of KRA, the race is being lost.
Cont. That gap between revenues and total public spending will get worse if Covod-19 emergency creates a permanent damage to economic activity.
2/4 The quest to close this gap between expenditure and public revenues, the executive and the legislative branches of govt. are placing the revenue collection service under pressure.
Cont. The effect of this is that the Kenyan tax code is getting increasingly complex, loaded with clause and subject to regular and abrupt revisions. The year's Finance Bill is a 46 page doc that contains several revisions of tax laws and procedures related to tax management.
Cont.. When laws related to commercial activity are changed this often, then it's clear Kenya lacks a coherent policy and the only aim of tax law is to collect as much as is possible, with the structural shocks to the economy to be borne by whichever firm stands in the way.
3/4 Despite Article 210 (1) of the Constitution, which says taxes may be imposed, varied or waived only through legislative action, the complexity & incoherence of the overall tax system has led Parliament to cede these to the CS for Finance & the revenue collection agency.
Cont..This situation of incoherent taxation policy had been lethally mixed with an economic shock and is likely to lead to the most aggressive interpretation of the tax code based on the "ceded powers".
Cont.. An instance of the arbitrary application of this power is in the way the Treasury CS has used residual powers in the remission of keg beer 🍺 & effectively doubled the tax burden for selected brands of alcoholic beverages produced from local grains. @IEAKwame
Cont.. The complexity of the tax code is exploited to effectively raise a tax without debate within Parliament. And this has occurred despite flowery messages about promoting domestic manufacturing capability.
Cont..Keg beer is popular in Kenya because it's affordable. It's introduction was explicitly encouraged by govt. as a substitute for unsafe products among low-income citizens.
Cont.. The doubling of tax from Sh 24 to Sh 44 per litre will crash demand for the legal product and create the demand in the informal alcohol market. This also illustrates how incoherent taxation policy can generate unintended consequences.
The solution is for Parliament to reassert itself, take back the taxation policy role that is granted exclusively to it by the Constitution.
"This will free up resources and time for the revenue collection service to invest in collecting taxes as set by the laws and not have to be creative to meet arbitrary revenue targets." - @IEAKwame
