EDITORIAL: Don’t punish taxpayers, plug old loopholes first
Monday May 21 2018
Perhaps, maintaining the old income tax rates and plugging old loopholes in the taxation value chain might offer a potential win-win situation for desperate governments and stressed taxpayers. FOTOSEARCH
As governments across East Africa struggle to plug wide tax revenue gaps experienced since last year, policy makers seem to overlook the real pain that these measures could add to people’s lives and businesses let alone the tax authorities.
Kenya for one, has opted to introduce a new top income tax rate of 35 per cent, a tax band that is five per cent higher than the standard corporation tax rate of 30 per cent, in an attempt to squeeze an extra buck from a few rich individuals and companies.
According to the government’s latest tax blue print, all individuals earning more than Ksh9 million ($88,855) per year will be subjected to the new top income tax rate, while companies that earn more than Ksh500 million ($4,936,410) per year will be subjected to the same rate.
The capital gains tax rate has been raised from five per cent to 20 per cent in a policy strategy expected to increase domestic taxes to Ksh1.74 trillion ($17.2 billion) in 2018/19.
Such punitive tax measures announced in a period of tough economic conditions might easily backfire on the taxman as individuals and companies try to conceal their incomes, through use of offshore tax havens, in a bid to make ends meet.
What incentive does a rich individual or company have for paying an extra shilling to the taxman in hard, economic times? Does the wealthy class enjoy immunity from economic hardships?
Have governments invested enough in tracking tools that monitor and analyse large investments made by high net worth individuals in the real estate sector, import and export trade plus banking transactions done over several years? How much money actually lies outside the tax net?
Perhaps, maintaining the old income tax rates and plugging old loopholes in the taxation value chain might offer a potential win-win situation for desperate governments and stressed taxpayers.
Uganda, on the other hand, appears more restless over its tax revenue blues. A recent proposal to levy an 18 per cent value added tax (VAT) rate on bibles and Korans immediately fell into a nasty political storm, with religious groups and government figures sounding jittery over the matter.
While the tax revenue potential of these items is not clear, the move also flies in the face of an old culture that preaches little or no tax enforcement against religious institutions and their tools of trade.
A presidential suggestion to levy an excise duty of Ush200 ($0.05) per day on social media users inevitably raises questions of double taxation and fears of reduced digital inclusion in an era of fast growing internet use.
The majority of local consumers access social media platforms through mobile phones that are served by airtime and data purchases.
Airtime cards sold by telecommunications companies are interchangeably utilised for voice calls and data consumption and are also subjected to 12 per cent excise duty and 18 per cent VAT.
But the most nagging question is how long it will take for governments to consider fiscal stimulus packages needed to fix struggling economies in the region and also make life easier for miserable taxpayers.