By

Tom Odhiambo

Title – Taxation, Responsiveness and Accountability in Sub-Saharan Africa: The Dynamics of Tax Bargaining Authors – Wilson Prichard Publisher – Cambridge University Press Date – October 2015

The peskiest question about taxes is: how to get people to pay them? But probably the one question that should always precede all debates about taxes is: what happens to the collected monies? These two issues go hand in hand. Collecting taxes is a most basic need of all forms of government these days – whether local or national – for it is the source of their survival. How to use the money collected is increasingly a more difficult question to answer as evidence shows that many tax collectors pilfer a significant part of the taxes and government officials – bureaucrats and politicians – tend to steal some more.

These two subjects are extensively discussed by Wilson Prichard. The book is based on extensive research on ‘bargaining between citizens and governments over tax collection’ in three countries: Kenya, Ethiopia and Ghana. The research cuts across different historical times, looks at diverse tax structures and processes and examines the many ways in which citizens bargain with government over taxes.

The chapter on Kenya is titled ‘Direct and Indirect Tax Bargaining in Kenya, 1963-2008.’ It begins by looking at how politics and government policies affect taxes and taxation. Going back into history, Prichard cites Waris who shows how tax policies in colonial Kenya were affected by the government’s racial categorization, with ‘the White and Asians populations … subjected to income taxes, excise taxes, and import duties, whereas the African population was primarily subjected to a poll tax, which evolved into the Graduated Personal Tax (GPT) late in the colonial period.’

He further shows that with independence there were different forms of taxes introduced in the country including sales tax, which improved revenues but with political uncertainty due to the poor health of the then president, Jomo Kenyatta, in the 1970s there was a slowdown in government revenues. Matters tax improved in the 1980s due to the new government of President Daniel arap Moi. There was more money, especially from the coffee boom of the time, with the government not introducing new taxes in the 1980s. Prichard notes that the government only attempted new tax reforms, which sought to “administrative improvements, reducing income and corporate tax rates, and rationalizing import, excise and sales tax.”

Later, tax revenues fell as the economy declined, ‘politically connected individuals weren’t paying taxes, parastatals failed to remit sales tax revenue, etc’, according to Prichard. The government’s response was to implement value added tax (VAT) in the 1990s, which increased government revenue and was generally not opposed despite adding to the burden of the taxpayers. Fuel levies were later introduced in an attempt to improve revenues for the government. But with local economic troubles of the 1990s, the government attempted more tax reforms in the decade, seeking to increase its revenues, especially by creating the Kenya Revenue Authority (KRA), which brought together different tax bodies in the country.

How did Kenyans negotiate these tax structures and reforms? Because of the reintroduction of multiparty politics in the country in the 1990s, there was a decline in the amount of taxes collected. One explanation offered by Prichard is that there were members of the opposition or individuals who didn’t favour the government and tried to “undermine the fiscal position of the government.” However, the new government in 2002 found a broke state and immediately sought to streamline taxes and taxation. It enjoyed goodwill from the public and tried to responsibly spend the monies it collected by offering free education and allocating part of the national budget to a Constituency Development Fund (CDF).

In a sense, despite the claim to political robustness in Kenya, Prichard argues that there has been little public engagement with the government on taxation. He notes that in the period he studied, only the response to the introduction of Electronic Tax Registers (ETR) and the rejection by MPs and the elite of capital gains tax could be said to have been serious negotiation over taxation. The ETRs were eventually introduced. But for indirect bargaining, the citizens always find a way around paying taxes.

In the case of Ethiopia, Prichard again takes the reader through the history of the country. He shows how the Ethiopian experience is unique in Africa because the country was never colonized, save for a brief period of Italian occupation. Consequently, the tax tradition in Ethiopia has largely been indigenous and dependent on the relationship between the state, the church and the local populations. Prichard records that there is evidence of longstanding conflicts between the local populations and the Imperial state over taxation, with the Ethiopian Orthodox Church thrown in the mix. But it is the regime after the deposition of the Emperor Haile Selassie in 1974 that Prichard studies in this book.

Prichard argues that the case of Ethiopia is made interesting by the fact that in the period studied, the military state was ‘comparatively autocratic’, thus ‘limiting the taxpayer capacity for collective action and the scope of institutions that could facilitate tax bargaining.’ But he shows that although there was little space to negotiate taxes centrally, there was evidence that there were possibilities for direct tax negotiation regionally. The military regime could control the centre but because Ethiopia had a federal system of government, citizens could pressure local governments over taxes and taxation. Even when the government adopted socialist policies and nationalized the economy, it struggled to raise revenue.

The post-military regime of the 1990s allowed political decentralization as well as some form of economic liberalization. The central government, though, still had a larger role to play in the economy, especially in setting tax policies. But Prichard writes that despite the loosening of the political and economic environments, there has been little engagement with the government over taxation: “… overt political conflict over taxation at the national level has been virtually non-existent”. He further notes that there was “no evidence of direct tax bargaining; even civil society engagement with tax issues has been extremely rare, with even the major business associations playing a primarily informational, rather than advocacy, role” at the time he conducted his study. It seems that as Ethiopia recovered from military rule and civil war, the state was more or less left alone to decide on tax and taxation, with the citizens unable or unwilling to engage with the government.

The third case that Prichard looks at Ghana. Indeed, Ghana is the focus of the first section of the book. In this case, Prichard traces tax policies in Ghana between 1981 and 2008, from the military rule into democracy. The military regime, though, had consolidated tax collection systems and policies in the early 1980s, even managing to increase revenues from tax, largely based on the good prices of Ghana’s exports, especially cocoa. Also, later, the government set up Citizens’ Vetting Committees, which identified individuals who appeared to have too much money but whose source could not be legitimately identified. These people were then taxed.

However, exports of raw materials are always subject to global price fluctuation. Ghana would be faced with the decline in exports and, therefore, less tax collections. All this time, Prichard suggests, there was little overt opposition to government policies, but things changed when Ghana democratized in the 1990s. The expanded political space enabled citizens to challenge government economic policies, especially on taxation. Ghanaians would reject increases in petrol prices, object to the introduction of VAT, and generally had a public say on tax policies. Prichard notes that of the three cases, Ghana showed the most robust engagement by citizens on matters tax, questioning the government’s polices as well as accountability for monies collected.

Why would this study concern us today? The simple answer is that everyone pays tax in one form of the other and so they should be interested in any discussion on taxes. Yet evidence shows that few citizens bother about government tax policies, often only reacting to how the government spends the money collected. Voluntary compliance with paying tax tends to be more of a wish than a fact. However, individuals are more likely to pay taxes when they can clearly understand government policies on tax and ‘see’ the direct (and indirect) benefits of the taxes collected. Taxation, Responsiveness and Accountability in Sub-Saharan Africa: The Dynamics of Tax Bargaining should spur more enquiries into how African governments set their economic policies and how such plans affect their citizens’ response to taxation.

The writer teaches at the University of Nairobi. Tom.odhiambo@uonbi.ac.ke

By

Tom Odhiambo

Title: Financing Africa; Author: Attiya Waris; Paperback: 214 pages; Publisher: Langaa Rpcig (November 12, 2019); Language: English

Talk about taxes or taxation to anyone on the streets anywhere in the world and chances are that the conversation will lead to a complaint about how government is taxing its citizens but not providing services. In many parts of Africa this complaint will be about how government is taking too much from its people and doing little with it. The problem is couched in the language of corruption. In the end, the common refrain is that corruption eats much of what is collected as taxes in Africa.

The consequence is that African countries have never been able to finance their budgets and development programs through taxation. African countries either cannot properly collect taxes or where the taxes are significantly collected, a big percentage goes into individual pockets. Whatever goes to the government is further lost in misappropriation by ministries, departments, agencies and their officers. The stolen money is in turn banked outside the continent in tax havens. This is a conundrum that African countries seem unable to resolve.

Which is why debates about Africa financing itself are important. Can African governments collect enough taxes to pay for services, goods, development and save? Can Africa rely on its own resources to improve the quality of life of its people? And even if African governments were to effectively collect taxes, how do ordinary citizens ensure that they know how much is collected, how it is spent, and where it is spent? In other words, how do the taxpayers guarantee fairness in the collection and use of taxes?

In Financing Africa (Langaa RPCIG, 2019), Attiya Waris asks the questions posed above but from a legal perspective. Should there be laws that govern how much the government can tax its citizens? Should the law also spell out how money collected from taxes can and should be spent? What should be government policy and country law on the debt that a country can incur? In other words, how much should a country be allowed to borrow internally and externally? What should be the debt ceiling, if at all it should be there?

These questions have a direct bearing on the form of government in any country. The system of governance be it in a centralized or unitary system as opposed to a devolved or decentralized system may determine how much the government collects from different sectors or the economy as well as regions of the country. Also, the system determines who collects taxes, where they go to, how they are shared out, and who accounts for it. Most African countries run a centralized system of governance where the central authority determines taxes, and the sharing and use of the collected revenue.

The problem with this system, as opposed to the devolved form of government is that it is difficult to hold officials at the centre accountable. In many instances, the decisions involving taxes are not consultative or shared. The top-down approach to revenue collection or use means that the common citizens have little information and control over the process. The government is a big brother who cannot easily be questioned. In the devolved system, citizens may demand at the local level to be involved in determining the use of their taxes even if they may not have input on what percentage of their income is collected, when, by who, and for what reason.

Waris suggests that fiscal decentralization takes three forms: fiscal autonomy, assigned revenues systems and fiscal transfers. In the first one the local authorities determine what types of taxes to collect and how to use the revenue, and only depend on their own resources. In the second, ‘each devolved unit receives taxation revenue generated within its jurisdiction.’

Under fiscal transfers the powers to determine tax type, percentage and collection remain with the central government. Local governments may collect some taxes, but they depend on the central government for expenditure allocations. These models have different results, according to Waris, in different African countries. For instance, Kenya uses the fiscal transfers’ policy despite having a devolved system of government. But the county governments are always complaining that they don’t receive their revenue allocations for expenditure on time, with salaries and services suffering.

Yet, despite what the law says, many scholars agree that taxation should follow a set of principles that are known and agreeable to the taxpayer. The taxpayer should also be able to understand what the reason and process of taxation means. These canons demand that taxation should be equitable and about equality so that there is some sense of economic justice for all citizens. This means that taxes should be paid according to one’s income, ability and the benefits they derive from government services and goods.

Taxes should be ‘certain, and not arbitrary’. The taxpayer should not spend extra time or resources trying to decipher how and why they are paying taxes. It should also be convenient to the taxpayer to pay their dues, just as it should be affordable. In many cases evidence suggests that tax collection in African countries is too expensive because of inefficient systems. Also, taxes should be productive, allowing the government to budget and finance its expenditures without having to borrow or borrow too much. Taxes should be flexible such that the government can vary them depending on economic realities of the days, such as the reduction of personal income tax in Kenya because of COVID-19. It should also be simple so that all and sundry can understand its workings. Lastly, there should be diversification in taxes in order to increase the government revenue streams.

The lack of tax diversity in Africa is a big problem. Too many countries depend on a single or a few sources of tax revenue such as oil, cash crops or tourism. In case of any global economic or financial instability which affects the prices of these commodities, such economies suffer significantly as the government is unable to collect enough taxes. The consequence is an unending dependence on loans and grants from bilateral and multilateral donors.

Yet, if African countries had proper laws and policies governing their tax systems, which laws and policies are understood by every citizen who is obliged to pay taxes and the authorities that collect the taxes and government officials who spend the revenue, then they wouldn’t be dependent so much on borrowing expensive loans and donors. Consequently, Waris suggests that governments need to ‘develop compliant taxpayers by helping citizens understand why and how to pay taxes, as well as how the collected revenue is used and how they benefit. She also suggests that African governments need to have laws that determine the limits of debts that governments can incur, how much they gain from international treaties and have controlled access to the loan’s markets. With such an approach to taxes, taxation and collection of revenues, African governments could finance their fiscal needs.

The writer teaches at the University of Nairobi. Tom.odhiambo@uonbi.ac.ke

By

Leonard Wanyama

Book Title: Trade is War; Author: Yash Tandon; New York and London; Publisher: O/R Books; 2015; 2015; Pages: 211pp

[This article was first published in the Saturday Nation on 12 December 2015 and the Society for International Development (SID) website at the time of the World Trade Organisation 10^th Ministerial Conference (WTO-MC10) in Nairobi. It’s republished on the Tax Rights Blog considering recent animated trade events in relation to the launch of US-Kenya Free Trade Agreement (FTA) negotiations. Also, this book review is relevant bearing in mind the selection, by the Kenya Government, of Ambassador Amina Mohammed to vie for the position of World Trade Organisation (WTO) Director General.]

If you think the only war Kenya faces is that of terrorism against the Al-Shabaab, you are either dead wrong or walking around with your eyes blind open. Recent events in past weeks obviously point to our struggles against corruption while our daily lives comprise various fights against either poverty, ignorance, disease, potholes, El Nino or a combination of all these.

As we head towards another very globally local event, in hosting the World Trade Organization (WTO) 10^th Ministerial Conference (MC10), Professor Yash Tandon reminds us in a new book that Trade is War.

Professor Tandon informs readers, from developing countries, that if peace is to be achieved then there must be preparations for war. The ways of war in trade may not be literally fought with Kalashnikovs but the outcomes are just as bad if not worse.

When countries lose livelihoods, communities have their industries dissipated, societies have their economies laid to waste and peoples’ lives are destroyed in much the same way as it happens in physical conflict -because of trade negotiations- then trade is truly an act of war. These loses ultimately strip away the dignity of individuals to the point of them being the walking-living-dead.

With such high stakes, trade is indeed a theatre of warfare for which developing countries must never surrender especially based on expected losses to lives of the downtrodden. Professor Tandon therefore looks towards hope from people power and he urges keeping faith in what it means to pursue freedom. Relying on 30 years of experiences as a scholar, activist or trade advisor in East and Southern Africa Tandon’s book takes you through various locations and shifts through different situations.

You see the experiences of normal people from villages to cities and ultimately different countries. It places characters in their global position within the international political hierarchy of trade relations. This movement paints a fast-paced picture of trade as a form of combat. Readers will quickly get the feel of negotiations in real time ‘jujitsu’ as interests are pushed or resisted by many parties.

Reading this book is important in order to appreciate the predicament of developing countries in international economics in an unsophisticated way. As a political economist, all things held constant, the author’s preoccupation with using simplified language throughout the book is a godsend for any reader. It helps that one won’t have to encounter a moment of explanations about what Pareto optimality is.

WTO is a monolith for which Professor Tandon points is an example that ‘The Empire still lives’. This is through subtle or not so subtle machinations of major power alliances. Hosting the M10 in Nairobi this December will therefore locate the theatre of battle against empire right at Kenya’s doorstep.

The obviously vicious struggles on points of definition overgrowth and development will extend to language in term of where to place punctuation as well. Its clear traditional bureaucratic tactics that paralyze processes will be employed to stall demands by developing nations and their respective citizens.

Tandon recommends that standing up to Empire is therefore not about bellicose braggadocio. It is a combination of bipartisan patriotism within states and committed dedication across social movements to achieve fairness for the meek. This revolutionary Pan-Africanist of yore is grounded in the logic of combat but doesn’t advocate for its action. He thereby advocates for a longer term and lasting non-violent approaches based on being tactful.

It is apparent that African diplomats, Kenyan ones, specifically, need to write more books on the continents external relations in the world. These should be based on current issues on the foundation of their experiences rather than the popular ‘rags to riches’, ‘how did I succeed’ or ‘I made it’ accounts they opt for. This is a book every WTO participant or journalist covering events should get their hands on before they walk into the ‘green’ rooms in Nairobi or after. It is available in local bookshops and you will read it in a day.

The author is the coordinator of the East African Tax and Governance Network (EATGN); Email – lwanyama@taxjusticeafrica.net

(PHOTO CREDITS: Courtesy SMART24TV)

Dealers in sugarcane products are facing a precarious future after Kenya announced it was banning imports from Uganda.

Kenya’s Agriculture Cabinet Secretary Peter Munya this past week said they are trying to prop up their struggling sugar sector, which has suffered due to competition from the neighbouring markets.

As of now, trucks ferrying sugarcane to Kenya have queued up at the Busia border point, which has led to signicant losses, considering the ban was announced abruptly.

Some have been at the border for as many as five days.

Uganda started exporting sugarcane to Kenya, following bilateral talks between President Museveni and Uhuru Kenyatta, in which it was agreed that Uganda sells its surplus sugarcane to the Busia Sugar factory in western Kenya.

Although the agreement came with stringent measures, Uganda’s out-growers had strived to fulfil them up to date. According to the deal, Uganda would export between 36,000 tonnes and 90,000 tonnes of sugar annually to Kenya.

The minister of trade, industry and cooperatives recently said that Uganda has a good sugar market with a surplus of 48,000 metrics tonnes. In April, Uganda scored a deal to supply brown sugar to Tanzania.

“Our Sugar Industry comprises of 11 functional Sugar Mills producing 510,000 metric tonnes and consumption is 360,000 metric tonnes per annum. Surplus is 150,000 metric tonnes and sufficient for export,” the minister said.

(PHOTO CREDITS: Courtesy WORLD COUNCIL OF CHURCHES)

Four global organizations representing some 500 million Christians have written an urgent letter to G20 leaders, calling for them to leave behind the current broken financial architecture and promote a truly just and sustainable recovery.

The letter, sent 13 July, is from the World Council of Churches, World Communion of Reformed Churches, Lutheran World Federation and Council for World Mission.

The organizations express “profound concern” over how COVID-19  and the related economic crisis have continued to destroy lives and livelihood around the world. “To date this has resulted in more than half a million deaths, massive unemployment, increase of debts, poverty, and inequality in many parts of the world.”

And the spread of COVID-19 continues to accelerate.

“This moment offers us an unprecedented opening to collectively examine the current order and to ‘build back better’ a different system that nurtures the health, wellbeing and resilience of communities and the planet for generations to come,” urge the organizations. “Here we would like to underline that COVID-19 recovery measures and policies must be compatible with urgent and ambitious action on the climate crisis.”