Source: Foreign Policy/ AI Generator: Adobe Firefly
As the groundswell of activism picks up, following ongoing debate over the 2024 Finance Bill, concerned citizens must always have a strategy to prepare for what comes next to remain vigilant in tax matters.
Numerous direct calls and texts to members of parliament seem to have jolted legislators as to the depth of resentment concerning current revenue raising measures being proposed, that are viewed as painful by majority in the country.
Through its Secretary General Senator Edwin Sifuna, the Orange Democratic Movement (ODM) has directed its parliamentarians to vote against the bill and to suspend all or any travel that will prevent their participation during its debate.
Similar directives are also expected of its affiliates under the Azimio la Umoja coalition umbrella.
Meanwhile, following announcement of protests, the ruling Kenya Kwanza Coalition administration led by the United Democratic Alliance (UDA) party have had a parliamentary group meeting to address various emerging issues causing public anger.
Punitive tax proposals, a public backlash against numerous presidential foreign trips, and public relations antics of a disgruntled deputy president have not gone down well with the public.
One question which Kenya Revenue Authority (KRA) officers are not keen to answer is whether the deployment of Revenue Service Assistants (RSAs) has been a success or not. Judicial nullification of 1,406 recruitments based on the unconstitutionality of tribal bias in their hiring has also not helped matters much. Kenya needs to ensure greater tax compliance to achieve its service delivery demands and debt obligations without going into default. KRA must, therefore, abandon the securitised approach to revenue collection and consider historical grievances plus sociological concerns in its implementation. Research by the East African Tax and Governance Network (EATGN) has clearly pointed out that at a very basic level noncompliance is driven by the fact that government offers poor service delivery despite payment of requested taxes.
Consequently, a tax orientation that immediately criminalizes noncompliance is not beneficial because tax evasion will continue if government does not keep its end of the bargain to provide public goods and services once taxes are collected. Additionally, public scepticism -and in certain instances outright rejection of the RSAs- could stem from past negative experiences that are deeply embedded in the national psyche, for example, abuses by officers under the former provincial administration like Chiefs who harassed citizens in their homes. Secondly, the implementation problem when looking at the targeted issue of taxing the informal economy, lies in understanding it only as a compliance issue alone and not a broader public finance conundrum related to the trust deficit in so far as the erosion of the Kenyan social contract is concerned. Narrow understanding of how to tax the informal sector therefore limits the definitions, and functions of localised tax officers needed to help boost domestic revenue mobilization because it is unresponsive to existing concerns.
Government should therefore change its interpretation of what a tax agent is beyond an officer who facilitates compliance support to include civic education and dispute resolution services. This will open the role beyond accountants and lawyers to sociologists, anthropologists, historians, political scientists, or even teachers who can assist in improving tax rights awareness needed to convince the public to pay taxes. In that sense, RSAs will therefore not simply be assistants but full Revenue Service Agents who are officers in three strands comprising compliance support officers; civic education officers; and dispute resolution officers. Expanding the meaning of what it means to be a tax agent will respectively help citizens to prepare and submit tax returns better, inform the public on specific tax measures or advise, plus offer legal support to taxpayers in the event of grievances. Boots on the ground approaches will therefore be replaced with human rights-based principles in ensuring empowerment of businesses by informing through training taxpayers on their rights and responsibilities. Legislation will be properly publicised, licensed tax agents will be easily accessible and citizens will be more enlightened as to how to address tax disputes when they arise. Such interactions will therefore build the public confidence needed in voluntary tax compliance.
Politically the issue of RSAs, as it stands now, should not simply be a question of ‘jobs for the boys and gals’ but through proper parliamentary legislation and subsequent regulations on procedures the proper conduct of tax agents will be established. Ultimately, rethinking the current inclination to police citizens at every corner with security officers introduces fairness in tax collection because at the very core Kenyan believe in the prospects for self sufficiency by voluntarily carrying out their duty to pay taxes. However, going by the reaction of avocado farmers, if the KRA continues its deployment of the paramilitary RSAs it will soon become clear that this will be a new barrier to effective citizen participation in taxation especially when facing high revenue collection targets.
The author is Regional Coordinator of the East African tax and Governance Network (EATGN). Follow on X @lennwanyama.
There is evidence to show that the existing tax regime in Kenya is unfair and unjust to women because of how it is structured and the fact that it fails to acknowledge and address their different circumstances. As a group, women often have multiple identities that have varying implications for their ability to pay taxes, especially given the disproportionate share of unpaid care work they carry.
Source: getimg.aa
Gender tax inequality manifests itself in the disparities related to labour productivity and the economy’s allocative efficiency. Where it exists, it results in diminished opportunities for certain groups within the society, affecting compensation for labour, access to capital, control over other productive resources, as well as the capacity to impact and participate in development processes.
There is evidence to show that the existing tax regime in Kenya is unfair and unjust to women because of the manner in which it is structured and the fact that it fails to acknowledge and address their different circumstances. As a group, women often have multiple identities that have varying implications on their ability to pay taxes, especially given the disproportionate share of unpaid care work that they carry. Gender responsive taxation is, therefore, essential because it recognises the distinctions between men and women.
In effect, the combination of taxes imposed by a nation – and the specific consequences of those taxes – can have a profound influence on women’s rights and gender equality. Whereas in high-income countries indirect taxes make up only one third of total tax revenues, in low-income nations, indirect taxes like trade taxes and value-added tax (VAT) account for approximately two thirds of tax collections.
This reliance on indirect taxes can have major implications for women. Indirect taxes typically take the form of consumption taxes such as VAT, which is regressive when implemented without exemptions since everyone pays the same rate regardless of their total income – and the poor, by necessity, spend a larger percentage of their income on consumable products. While it is very difficult to determine the effects of VAT and the overall tax burden on women separately from men, it is widely believed that women are disproportionately burdened by VAT because they make up the majority of the poor and are more likely to spend their income on the daily necessities for the household, including for children.
According to the 2022 Demographic and Health Survey conducted by the Kenya National Bureau of Statistics (KNBS), 36 per cent of households in the rural areas and 33 per cent nationally are headed by women who spend most of their income on food and other basic necessities and services. From this we can deduce that the burden of VAT is generally higher for women since most of their income is spent on those goods and services to which VAT is applicable. A Route to Food report finds that the VAT Act 2013 had a devastating effect on the purchasing power of households, significantly reducing their capacity to afford food and meet their nutritional needs.
The doubling of VAT on petroleum products from 8 to 16 per cent under the Finance Act 2023 will have placed an even greater burden on women by further driving up the cost of essential commodities.
The doubling of VAT on petroleum products from 8 to 16 per cent under the Finance Act 2023 will have placed an even greater burden on women by further driving up the cost of essential commodities.
As the cost of doing business goes up, squeezing already meagre profit margins, this increase is being felt by the marginal small and micro-enterprises, which re mostly informal businesses in where women mainly engage.
The increase will also be felt most by the marginal small and micro-enterprises, the mostly informal businesses in which women mainly engage, as the cost of doing business goes up, squeezing already meagre profit margins.
As such, while indirect taxes such as VAT target and affect the whole population, they do not consider the implications for women – especially those in single-parent households – and their ability to produce and increase their incomes.
Hidden time tax
Taxes are based on income. However, there are other sources of income that might not come from employment, such as domestic production, yet most countries do not include non-market production in the income that is subject to tax. Women perform 75 per cent of the unpaid care work worldwide, including cooking, cleaning, tending to children, the sick, and the old, as well as helping other families and the society at large. Other unpaid jobs include working in a family business, making clothes and other items for use by the household, and engaging in subsistence farming.
Although it is not remunerated, this work enables society and the market to function, and the economy to thrive. And while it has not been effectively measured, it is estimated that care labour could be contributing between 10 and 50 per cent of GDP if assigned a monetary value. Yet women’s care work remains unrecognised in Kenya’s national accounts and is not considered in the country’s fiscal policy. In essence, providing unpaid care work results in the systematic transfer of unacknowledged hidden subsidies to the economy and imposes a time tax on women.
In addition, women who provide unpaid care are less able to pursue paid employment, engage in public or community life, or even just take time out for leisure and relaxation; according to research by Action Aid, the average woman works four additional years over her lifetime compared to her male counterpart.
Moreover, in most developing countries, the demands of women’s unpaid care work often mean that the kind of work they can fit around their caregiving responsibilities is frequently informal, precarious, low-paid, and conducted in poor conditions. They are routinely paid less than men for work of equivalent worth.
In most developing countries, the demands of women’s unpaid care work often mean that the kind of work they can fit around their caregiving responsibilities is frequently informal, precarious, low-paid, and conducted in poor conditions.
Intersectional gender inequality
It is to be noted, however, that even among women, there are marked inequalities that mean that for some, tax injustices are more pronounced and more profoundly unfair than for others. This is especially the case for women who live in the marginalised areas of Kenya that have suffered historical government neglect and where the provision of basic public services has been limited.
In effect, there is evidence of marked inequalities in the distribution and access to basic services and public goods between many of the counties considered marginalised in Kenya and the rest of the country. As such, women bear an even greater burden in areas where health facilities are poorly staffed or inadequately equipped, where water services are inadequate and access to education is limited. The net effect is that they are given even less opportunity and allowed even less time – compared to men – to pursue productive activities outside the household that could improve their incomes and livelihoods.
Therefore, while gender discrimination affects all women in some capacity, there are additional factors related to their social identities – such as class, ethnicity, religion, or region of origin – that contribute to the existence of significant differences in the ways that women from different groups experience discrimination. Such factors essentially show up in the form of problems and vulnerabilities that are specific to certain groups of women or that disproportionately impact some women compared to others.
However, interventions designed to address gender discrimination have proven not to effectively consider the plight of women subjected to multiple forms of discrimination. They have failed to address the ways in which patriarchy, economic disadvantages and other forms of discrimination contribute to creating layers of inequality that structure the relative positions of men and women, ethnic communities and other groups, and determine the distribution of resources and opportunities to one group rather than to another.
While notable progress has been made in terms of their status and their rights, women in Kenya continue to lag behind men. It is therefore critical to work towards solving this problem by developing tax, budgeting and public finance policies that acknowledge the fundamental distinctions that exist between men and women that render the latter vulnerable to tax injustices. Gender-responsive taxation is essential because it not only acknowledges these distinctions but also allows for the assessment of an existing tax regime in order to address the gaps that contribute to the overburdening of certain groups.
To promote tax equity for women will require addressing the drivers of tax injustice. These include the absence of women in the processes that determine the mobilisation, distribution and accountability for domestic resources (largely taxes); the burden of unpaid care work and its implications regarding taxation for women; gender differences regarding consumption patterns and property rights; and the inadequate and inequitable distribution of public goods and services, in particular those that have a direct impact on the circumstances of women.
Ensuring a fair and progressive tax system that facilitates the equitable redistribution of public resources and public goods and services, and that reduces inequality and promotes inclusive development will require collaboration between the civil society, government, academia and the private sector. It will also necessitate policy reforms and institutional changes as well as capacity building and education regarding the implications of the gender roles of women, and government policies and laws, on the fairness of the tax regime on women.
Ensuring a fair and progressive tax system that facilitates the equitable redistribution of public resources and public goods and services, and that reduces inequality and promotes inclusive development will require collaboration between the civil society, government, academia and the private sector.
Without a careful review of the design of tax instruments, it is likely that they will continue to disproportionately hurt women as they are more vulnerable to poverty, to inequality, and to internal and external economic shocks.
Tax is an important instrument, not just as a source of income, but also because taxation and tax policies are pivotal to remedying inequalities. However, in order for a state to meet its human rights obligations, it must put in place a progressive tax system that can mobilise revenue and put it to use equitably and accountably.
Source: Sketch by Lunapic.com
By Betty Guchu
Every member state of the East African Community has ratified the Universal Declaration of Human Rights, the International Covenant on Economic, Social and Cultural rights, and the African Charter on Human and Peoples’ Rights, all of which seek to guarantee fundamental human rights including the right to education, housing, adequate living standards, equality of access to opportunities, access to justice, access to clean water and healthcare, among others.
Yet many of the region’s citizens still do not have access to even the most basic services such as potable water and primary healthcare. While they are often accused of failing to adopt equitable and progressive tax policies that would contribute to the advancement of the citizens’ economic, social and cultural rights, for their part, governments tend to plead lack of resources and competing priorities. They argue for the progressive approach, losing sight of the policy options available to them that could help prioritise human rights rather than maintaining economic models that have systematically failed to safeguard the interests of the poor and vulnerable who bear the brunt of these choices, particularly during periods of austerity.
Tax is an important instrument, not just as a source of income, but also because taxation and tax policies are pivotal to remedying inequalities. However, in order for a state to meet its human rights obligations, it must put in place a progressive tax system that can mobilise revenue and put it to use equitably and accountably.
Arguably, revenue mobilisation cross the East Africa region is inequitable given the over-reliance on income tax to raise revenue that places the burden on a small minority of citizens in formal employment, and on VAT, which is considered a regressive tax because it places a higher burden on lower-income individuals who tend to spend a larger portion of their income on essential goods and services compared to higher-income individuals.
Moreover, the revenues thus raised fall short of the national budget, with the result that competing priorities prevail at the expense of economic, social and cultural rights. The shortfall in the budget also leads to increased borrowing and dependence on international development assistance.
The practice of conceding tax incentives without due regard to the opportunity cost of such concessions, combined with the deleterious effects of illicit financial flows, contributes to the loss of much needed resources that could be invested in the realisation of the economic, social and cultural rights of the citizens of East Africa.
The issue goes beyond the availability of resources, however. Rather, it concerns the ability of the state to not only maximise revenue collection but to also safeguard its sources of revenue. However, the practice of conceding tax incentives without due regard to the opportunity cost of such concessions, combined with the deleterious effects of illicit financial flows, contributes to the loss of much needed resources that could be invested in the realisation of the economic, social and cultural rights of the citizens of East Africa.
Tax incentives in the East African Community
The region is estimated to lose between US$1.5 billion and US$2 billion annually through tax incentives. Within the countries of the region, tax incentives are primarily offered as a means of attracting Foreign Direct Investment. To offer these incentives, governments typically eliminate or reduce corporate income tax, customs duties and VAT payments among other concessions.
The region is estimated to lose between US$1.5 billion and US$2 billion annually through tax incentives.
Perversely, the incentives encourage “corporate shopping” as countries undermine their own economic interests by bidding downwards against each other in their quest to “win” over corporate entities. The multinational corporations that typically benefit from these concessions then proceed to employ aggressive tax planning measures that exploit challenges in government oversight and loopholes in national tax policies – when they are not engaging in outright tax evasion and illicit financial flows.
A taxation and human rights report compiled by the East Africa Tax and Governance Network finds that for the 2016/2017 financial year Kenya lost KSh100 billion through tax incentives, representing 4.42 per cent of the total budget. Had Kenya not conceded these incentives, it would have raised 70.7 per cent of its total budget through tax revenues. The report found that the trend was similar in the other countries of the East African region with Rwanda registering the heaviest losses (6.31 per cent) and Tanzania and Uganda registering 4.40 per cent and 3.93 per cent, respectively.
The EATGN report finds that the revenues thus lost would have quadrupled Kenya’s social security budget, increased it five-fold in Uganda, and increased seven-fold Rwanda’s water sector budget.
The EATGN report finds that the revenues thus lost would have quadrupled Kenya’s social security budget, increased it five-fold in Uganda, and increased seven-fold Rwanda’s water sector budget. On the other hand, Tanzania showed a modest increase in allocations to the economic, social and cultural sectors, indicating a prioritisation in allocation. However, the increase would need to be regarded with some caution as 74 per cent of Tanzania’s total budget for the period accounted for recurrent expenditure. Consequently, it is crucial to remember that allocations should not be interpreted as proof of the achievement of social, cultural, and economic rights; rather, they should be analysed in the context of how spending affects access to services that facilitate the realization of these rights. Put differently, the question is whether or not investments are being made in the major areas that directly affect life expectancy, such as health and water, years spent in school, and risk reduction against shocks and pressures in life – social security, and in some cases, social protection.
Clearly, such as they are practiced, tax incentives undermine domestic resource mobilisation and, consequently, the realisation of the economic, social and cultural rights of citizens.
Illicit financial flows
A report of the Africa Union High Level Panel on Illicit Financial Flows (IFFs) estimates that US$50 billion leaves the African continent annually. A case study in the report finds that Kenya lost US$1.51 billion between 2002 and 2011 through trade misinvoicing.
According to the report, Illicit Financial Flows take place through corruption, and commercial and criminal activities, with losses through commercial activities accounting for more than those occasioned by corruption and criminal activities combined. It must be noted, however, that the revenue lost through corruption may be far greater given the role it plays in facilitating losses through both criminal and commercial activities.
As states fail to put in place and enforce the necessary legislative and policy frameworks to curb the haemorrhage, Illicit Financial Flows represent an opportunity cost as they could have been used to shrink budget deficits or to provide services that would go some way towards the realisation of the economic, social and cultural rights of citizens.
But making investments in education, health, social security and water is not merely a question of upping allocations; the impact of the investments on particular segments of the population must also be considered. For instance, foregone revenues that could have been invested in education could result in more girls being denied access to education, which in turn would impact their future earning potential. Investment decisions must, therefore, take into account the gender dimension.
Making investments in education, health, social security and water is not merely a question of upping allocations; the impact of the investments on particular segments of the population must also be considered.
Reforming taxation
Citizens accept and comply with taxes in exchange for the government providing effective services, the rule of law and accountability. Depending on how regressive or progressive they are, tax policies can either entrench or alleviate social, economic and political disparities.
Citizens accept and comply with taxes in exchange for the government providing effective services, the rule of law and accountability. Depending on how regressive or progressive they are, tax policies can either entrench or alleviate social, economic and political disparities.
Civil society, therefore, has a fundamental role to play in holding governments to account and advocating for progressive tax regimes that safeguard economic, social and cultural rights, as well as creating awareness concerning tax justice and human rights.
For their part, governments of the East African region must improve their resource mobilisation capacities if they are to meet their obligations with regards to promoting the economic, social and cultural rights of their citizens. To do this, they will need to review any policies, laws or agreements that undermine domestic resource mobilisation, including but not limited to tax incentive regimes, double taxation agreements, and production sharing contracts. Additionally, it is imperative for states to diversify their tax portfolio and ensure that different economic sectors pay their fair share of taxes, without imposing regressive taxation or placing the burden on a minority. Indeed, effective tax reforms can help to raise the resources needed to deliver essential services.
A cost-benefit analysis of tax incentives as a policy choice must be undertaken to ensure that they are the best feasible alternative, offer value for money, and do not infringe upon or impede the realization of the citizens’ economic, social and cultural rights.
Moreover, a cost-benefit analysis of tax incentives as a policy choice must be undertaken to ensure that they are the best feasible alternative, offer value for money, and do not infringe upon or impede the realization of the citizens’ economic, social and cultural rights.
Most importantly, the region’s governments must also increase their budgetary allocations to those sectors that enhance the realisation of economic, social and cultural rights which, thus far, have been given very low priority.
Taxes form the bedrock of economic, social and cultural rights because they provide the resources necessary for the realisation of these rights. However, their realisation is directly impacted by the state’s policy decisions and, for this reason, discussions on taxation and human rights cannot be held one in the absence of the other. Indeed, economic policies are necessarily human rights policies and human rights policies have a direct bearing on economic policy.
What is needed, therefore, is a human rights economy that places people at the core of economic policies and investment decisions and, in so doing, enhances the enjoyment of human rights for all.
As Kenya aims to rationalize and harmonize tax expenditures, the lingering question is whether its fiscal performance will lead to a standing ovation or calls for a script rewrite.
Source: State Department for Investment Promotion/ Sketch: Lunapic.com
Tax incentives are deductions, exclusions, or exemptions from taxes that are due to the government. They are employed as incentives to draw money flows into desired economic sectors or areas, or to make particular investments. Thus, tax incentives lower a person’s or a business’s tax liability while costing the government money. They may be cost-based, meaning they lower the cost of capital, or profit-based, meaning they minimize income taxes.
Profit-based incentives include tax exemptions, tax holidays, tax deferrals, tax allowances, special economic zones, and financing incentives, while cost-based incentives include investment allowances, tax credits and investment tax credits.
The government agency in charge of assessing, collecting, and accounting for all revenues in Kenya is the Kenya Revenue Authority (KRA). In accordance with the Income Tax Act, the Authority offers fiscal (tax) incentives in collaboration with other regulators and facilitators, including the Capital Markets Authority (CMA) and the Export Processing Zones Authority (EPZA – for the granting of EPZ incentives), among others.
The total amount of money that the government forfeits as a result of providing tax incentives is known as tax expenditures. Over the past five years, tax expenditures have averaged KSh383.9 billion, which is nearly equal to the KSh382.6 billion allotted to counties in the 2020–21 fiscal year and nearly half the KSh651 billion earmarked for debt payments in the same fiscal year.
Over the past five years, tax expenditures have averaged KSh383.9 billion, which is nearly equal to the KSh382.6 billion allotted to counties in the 2020–21 fiscal year and nearly half the KSh651 billion earmarked for debt payments in the same fiscal year.
This has led some economists and development professionals to argue that, given the limited budgetary space the government has had to operate in over the last five years, money lost through tax expenditures could be used to pay down debt and could also greatly boost the resources available to county governments.
In effect, while the budget has expanded, resource needs have grown even more. Yet the provision of basic public goods and services, such as health, education, and other social amenities like water, electricity, and roads, has been restricted in favour of debt servicing, pensions, and salaries. Late revenue disbursements to the counties have made the situation worse.
The provision of basic public goods and services, such as health, education, and other social amenities like water, electricity, and roads, has been restricted in favour of debt servicing, pensions, and salaries
Kenya’s public debt portfolio has grown dramatically over the past ten years due to borrowing to cover fiscal deficits; it went from KSh1.4 trillion in June 2011 to KSh8.2 trillion in December 2021. According to projections from the Parliamentary Budget Office (PBO), the entire amount of debt outstanding is expected to surpass KSh10 trillion by the end of 2024, with debt servicing accounting for 65% of all revenues received during the 2023–2024 fiscal year.
Transparency of Tax Expenditures
A comprehensive set of laws, regulations, and guidelines mandate that the Treasury guarantee the openness of tax expenditures. In reality, however, there is a level of opacity that prevents public scrutiny and encourages abuse of tax expenditures. Moreover, there are no provisions in the current tax expenditure legislation for situations in which it may be determined that the recipients have violated the requirements to qualify for tax exemptions.
The Treasury has consistently disregarded the law’s requirement that it disclose information on tax expenditures to the public on a regular basis.
Furthermore, the Treasury has consistently disregarded the law’s requirement that it disclose information on tax expenditures to the public on a regular basis. The tax expenditure data currently available only goes back to 2017, leaving out information for earlier fiscal years.
The Treasury published the first ever Tax Expenditure Report on Kenya’s tax expenditures for the 2017-2020 period in September 2021. The report is insufficiently detailed, providing only the total amount of revenue that the government has conceded as a result of the preferential tax schemes. Some stakeholders contend that rather than being a proactive step to improve openness, this was mostly done to comply with IMF requirements.
Access to comprehensive data about the recipients of tax expenditures and the criteria used to grant incentives is likewise severely lacking in transparency. This restricts scrutiny and makes it more difficult to conduct a thorough analysis of the costs and benefits accrued.
There are also challenges in accessing information about the requirements that the various taxpayers must meet to be eligible, and the steps taken in the event that businesses or other entities do not fulfil the requirements on the basis of which the incentives are offered—such as the creation of jobs, among other things.
Essentially, a prudent framework for tax expenditures needs to include procedures for disclosing information on the number of taxpayers who meet the requirements for each tax expenditure and the specific eligibility criteria. For example, the Corporate Income Tax (CIT) tax expenditure requires companies to fulfil certain conditions such as offering employment opportunities to residents in the area in which they set up.
It becomes more difficult to hold businesses that profit from tax benefits accountable without the disclosure of such information. The lack of this kind of data also makes it more difficult to evaluate the costs and benefits of tax expenditures in making future-oriented tax expenditure policy decisions.
Accountability of Tax Expenditures in Kenya
The Treasury has continuously neglected to conduct assessments of the various tax expenditures, despite the government providing the goals and specific policy objectives of the numerous preferential tax schemes. Therefore, without knowledge of how well specific preferential tax policies have performed in the past in terms of achieving goals, it is difficult to comprehend the rationale offered by the government for their continued implementation.
The reviews that have been conducted have largely involved altering the composition and structure of the tax expenditures without evaluating their efficacy. As a result, it is possible that some tax expenditure decisions made by the government have been implemented without the necessary accountability as required by law and could be resulting in net revenue losses.
Moreover, the laws governing tax expenditures do not provide for sunset clauses and there is currently no data available concerning expiry dates for many existing tax expenditures in Kenya. This leaves room for the abuse and manipulation of incentives to benefit entities with close relationships at the highest levels of government decision-making.
Furthermore, even in cases where expiration dates seem to exist, there has been a propensity to renew or modify current incentives without following the proper procedures.
The end result is a framework for tax expenditures that, in particular, permits foreign corporations to come into the country, attract incentives, and repatriate benefits over extended periods of time without facing scrutiny or legal repercussions should they fail to comply with the requirements.
Tax Expenditure Efficiency and Equity
Assessing the equity of tax expenditures is necessary to determine who benefits from them – whether the preferential tax treatments give more economic advantages to the wealthy than to the poor, or whether they make the tax system as a whole more or less equitable.
However, estimating the impact of investment incentives requires data regarding the identities of the beneficiaries and the tax benefits they receive. These data needs are unachievable, particularly for developing countries like Kenya where weak governance results in a lack of government accountability and openness, information asymmetries, and restricted public participation in policymaking.
In general, the tax expenditures incurred by the government of Kenya seem to benefit the middle and upper classes more than the lower-income groups, especially the very poor. Furthermore, it appears that corporations benefit more from tax expenditures incurred under the VAT than small and medium enterprises. And even among corporations, multinational corporations tend to attract more incentives than local businesses.
Moreover, manufacturing, finance, insurance, and construction appear to benefit more from tax expenditures than agriculture, the largest employer and a significant contributor to the country’s GDP and overall economic growth.
A review of the 2021 Tax Expenditures Report shows that the government has lost a significant amount of money as a result of tax expenditures in the manufacturing, agricultural, construction, banking, and insurance sectors. Returns in terms of growth, employment creation and other connected benefits such as export growth appear not to be commensurate with the tax expenditures incurred.
The report shows, for instance, that tax expenditures have been steadily rising for the manufacturing sector; in the period between 2017 and 2019, the sector received KSh33.1 billion in tax expenditures on average. However, the sector’s share of GDP has been declining over time, falling 1.7% between 2016 and 2020.
A second Treasury report published in November 2022 is similarly a summary of tax expenditures for 2021. The figures show an 18.3% increase in total tax expenditures, from KSh267.1 billion in 2020 to KSh316 billion in 2021. Figures published by the Treasury in October 2023 record an increase to KSh393.6 billion in 2022.
The Treasury attributes the rise in total tax expenditures between 2020 and 2022 to increased expenditures across the various tax heads brought on by an expansion of economic activity. The report also says that a review of various tax laws has also resulted in the introduction of new tax incentives.
Specifically, the government introduced a 150% capital allowance to encourage investment, eliminated import duties to allow the importation of food items into the country to protect Kenyans from the high cost of food due to the drought and rising commodity prices, and introduced insurance relief for NHIF contributions.
While the 2022 report notes that “there is a need to have an elaborate framework for monitoring and evaluating the impact of tax expenditure in the economy”, this does not yet seem to be in place, with the 2023 report concluding that “the Government will continue to rationalize and harmonize the tax expenditures with the aim of removing redundant tax expenditures while enhancing those intended to promote investments” and confirming only that the Treasury is automating tax exemption procedures in order to reduce processing times and increase efficiency.
Evaluating the costs and advantages of tax expenditures in order to make future-focused tax expenditure policy decisions will remain challenging in the absence of a strong framework.
Evaluating the costs and advantages of tax expenditures in order to make future-focused tax expenditure policy decisions will remain challenging in the absence of a strong framework. Yet, thus far, the reviews that have been carried out have entailed making changes to the structure and composition of tax expenditures without assessing their effectiveness.
This article is part of the East African Tax and Governance Network (EATGN) Media Fellowship Initiative as part of the Scaling Up Tax Justice (SCUT) Project in collaboration with Tax Justice Network Africa (TJNA).
Source: The Star Kenya/Sketch: Lunapic | President William Ruto meets World Bank President Ajay Banga
In the delicate dance between economic development and public debt, Kenya finds itself at a critical juncture, grappling with the consequences of imprudent debt management.
Debt, when not managed wisely, can be a double-edged sword, a fact starkly illustrated in Kenya’s current economic situation.
The Kenyan government has racked up substantial debt to the tune of Ksh10.25 trillion, surpassing its Ksh10 trillion ceiling. This has created immense pressure to service it which in turn has led to some rather expedient and potentially detrimental decisions.
One such decision involves the government’s push to increase taxation. In June 2023, lawmakers approved the passing of the Finance Bill 2023, containing a number of deductions.
With these changes, including a doubling of the VAT on petroleum products from 8% to 16%, a rise in income tax for individuals earning more than Ksh 500,000, the introduction of a 1.5% housing tax, and a 2.5% medical insurance tax, many Kenyan citizens now find themselves allocating nearly 40% of their income towards various taxes and levies.
Since then, hardly a month has gone by without some new form of tax proposal.
Desperate to meet debt servicing demands, the government has cut development spending and increased taxes without adequate regard for their regressive impact.
This has disproportionately affected low and middle-income households, deepened socioeconomic disparities, and stifled domestic enterprises. When the private sector struggles to thrive under the weight of excessive taxation, economic growth suffers.
In a desperate bid to manage the ever-increasing debt load, the government has chosen to take out new loans to pay off existing debt, a short-term solution that perpetuates the cycle and leads to unsustainable debt levels, creating a precarious financial future.
While it’s essential to understand the domestic factors that have led Kenya into its current debt quagmire, the International Monetary Fund (IMF’s) involvement cannot be ignored.
The IMF often plays a significant role in shaping a country’s economic policies and offering financial support in times of crisis. However, the conditions attached to such financial support can have far-reaching consequences for a nation’s economy.
In Kenya’s case, the IMF’s involvement has come with specific conditions, including austerity measures and fiscal reforms, as prerequisites for loans or financial aid.
The pressure on the government to meet IMF-imposed conditions often leads to further cuts in public spending, particularly in crucial areas like health and education, which have long-term impacts on the well-being and development of the nation.
As Kenya’s longstanding association with the IMF dates back to 1964, one cannot help but question why – despite the purported significance and substance of the reforms advocated by the institution- tangible transformation remains elusive.
In fact, while billions continue to be lost to needless tax expenditures and corruption, the allure of easy money from the institution has created false comfort and killed innovation in improving the tax regime and related policies.
In general, there has been a notable lack of political will to pursue fiscal reforms that create just tax policies because of easy access to debt.
Kenya’s debt crisis is a cautionary tale that underscores the severe consequences of imprudent debt management and external influences, such as those exerted by the IMF.
It is imperative for the country to strike a balance between securing necessary financial resources and maintaining fiscal responsibility, charting a course towards sustainable growth and development that doesn’t come at the cost of its citizens’ well-being.
The author is Program Assistant at the East African Tax and Governance Network (EATGN).
Lately, whenever taxes are mentioned in conversation, a good portion of the time is taken to offer each other a shoulder to lean on among other forms of psychosocial support.
This is because mere mention of the Kenya Revenue Authority (KRA) actions unleashes a barrage of emotions with every single person having something to say about how paralyzing current measures are.
Even school children are beginning to write poems about how troublesome taxes have become. Also, there is glaring behavioral change as individuals try to stretch their shillings and cents.
You may have noticed shopkeepers aggressively asking you to avoid paying using till numbers because they prefer you send cash to their personal lines.
Maybe you’ve also noticed that Kenyan sensibilities of being offered free bags or packaging as an after-sales service have now since long gone because it costs too much for traders.
Consequently, the tax burden is reducing productivity and lowering consumption. Fewer jobs mean less people to tax and minimal consumption means that the economy will contract further because uptake of business wares or services is decreasing.
Most pundits have been trying to explain this pain using the Laffer Curve theory that describes the relationship between tax rates and the amount of revenue collected by governments.
Present discomfort, to them, is illustrative of how the current administration is pushing the limits of revenue collection to the breaking point because higher tax rates result in lower revenues.
This is because the promise of expanding tax bases that would have reduced rates due to a wider revenue resource pool, have been replaced with higher tax rates squeezing every cent possible out of people’s pockets despite no increased incomes in the context of a sluggish economy.
Accordingly, this therefore beats the purpose of self-financing the country’s service delivery thereby showing why the government keeps resorting to debt acquisition that is part of punishing expenditures locking the country in an almost fruitless cycle like the cursed King Sisyphus of Ephyra in Greek mythology.
Yet, while indeed KRA has missed its targets, the fact that its revenues have grown by KES 45.3 billion confirms that Kenya does not have a tax collection problem but mostly a public expenditure challenge.
Listening to the Controller of Budget, Dr Margaret Nyakango, at the National Dialogue Committee it is very clear that across government – be it the executive, the judiciary, or the legislature- there is a problem of moral hazard in how public finances are managed.
Basically, this means that in decision making or implementation various officials and institutions engage in risky behavior that is not in the public interest because they bear no risk for the economic consequences of their actions.
This systemic bad faith therefore explains how KRA officers can begin to harass passengers at airports without thinking of implications to tourism or why the Energy and Petroleum Regulatory Authority (EPRA) can disregard a court order suspending implementation of the Finance Act 2023.
It explains why duty bearers may not realize that costly mobile money transaction fees on account of taxation hinder essential services and even jeopardize government digital services by discouraging citizens from using them.
Multiple extraction of funds from people’s purses that do not correspond to the services available to them then begins to break the social contract between the individual and the state.
Government cannot continue to spend beyond its means. Tax governance efforts, that is, prevention of avoidance and evasion of taxes should consider a civic education approach to support ongoing capacity building efforts.
This is so that even as current efforts develop new knowledge, improve skills, change existing bad practices, and inform policy makers, there is greater personal awareness plus responsibility for socio-economic implications of tax actions.
The author is Regional Coordinator of the East African Tax and Governance Network (EATGN). Follow on X @lennwanyama.
Source: Nairobi International Financial Center/Sketch: Lunapic
Offshore tax havens are well-known for attracting the wealthy, including politicians and business magnates, to safeguard and manage their assets. In many African contexts, these offshore havens have been linked to the illicit accumulation of stolen public funds.
Whenever they make headlines, it’s typically due to massive tax evasion or corruption scandals or alleged impropriety involving prominent leaders worldwide such as when the “Pandora Papers” implicated Kenya’s former president, Uhuru Kenyatta.
Based on media coverage, it is easy to picture tax havens as some notorious zero-tax Caribbean paradise like the Cayman Islands or the Bahamas. These are only part of a larger global system of financial secrecy. In reality, tax havens can be found a lot closer to home.
Some argue that the governments of developing countries should not even attempt to become tax havens. Recent developments in Africa contradict this notion with an increasing number of African states considering or setting up International Financial Centers (IFCs).
These are establishments set up by means of legislation that offer investors convenience through a combination of low tax liabilities, high levels of secrecy and limited regulatory standards as an incentive for foreign investment.
Data from the Global Financial Centers Index shows the existence of as many as eight IFCs in countries such as South Africa, Mauritius, Morocco, Kenya, Nigeria, and Rwanda. All share the ambitious goal of positioning themselves as an investment hub for Africa.
Officials have touted these centers as efficient gateways for external capital inflows to Africa, potentially bringing in millions in investments, hundreds of thousands of jobs, enhanced skills, and contributing to higher GDP growth.
While IFCs can attract finance for development they also hinder resource mobilization. Legal gaps in their frameworks can and continue to be exploited for tax avoidance and illicit financial activities.
Companies often exploit these gaps by channeling their capital through IFCs, reducing their tax liabilities with no intention of these jurisdictions being the final destination of their investment benefits. This lack of genuine economic activity mirrors tax havens and can lead to an increase in easy-to-impose taxes to compensate for lost income.
Additionally, the secrecy of IFC investments attracts criminals seeking to legitimize illicit transactions and hide their ownership through ‘shell corporations,’ which exist primarily on paper with no substantial business operations.
In a bid to attract the most foreign investments into their countries, African states have been competing to undercut each other in offering a wide array of tax incentives. A phenomenon that has popularly been described as ‘a race to the Bottom.’ This game of tax competition makes it harder for countries to maintain higher tax rates, leading to ever-declining rates and revenues.
Surprisingly, research suggests that tax incentives are not a primary factor in attracting foreign investment. Infrastructure quality, low administrative costs, political stability, and consistent macroeconomic policies hold more weight as motivators for foreign investors.
While African nations strive to modernize their financial infrastructure, it is crucial to do so without compromising development efforts. Governments must address vulnerabilities and domestic inequalities that may arise from these strategies, urgently reviewing and closing any loopholes that enable tax abuse.
In an era of multiple crises and unprecedented levels of inequality, any losses in critical resources needed for recovery and development cannot be afforded.
The author is Program Assistant for the East African Tax and Governance Network (EATGN).
Kenya faces predicted economic challenges due to high debt. The International Monetary Fund (IMF) proposed fiscal consolidation which includes increased taxes and privatization has been criticized for causing job losses and exacerbating corruption.
Source: getimg.ai
I worked as an intern at the Institute of Economic Affairs (IEA) in the early 2010’s presentations for the institution’s annual budget analysis which had begun tracking the roots of the economic nightmare Kenya finds itself in today.
Kwame Owino, the Chief Executive Officer (CEO) of the Institute for Economic Affairs (IEA), has for over a decade tried to warn the country that running huge fiscal deficits will end up in ‘premium tears’ because the rate at which debt has been growing would eventually make it impossible for the government to function.
Owino was largely ignored, sometimes facing online accusations of belonging to the wrong tribe – the Luo – thereby assumed to be advancing the anti-government criticism of his fellow tribesman Hon. Raila Odinga who had lost in the elections that brought the Jubilee administration to power.
The Derailed Kenyan Express
A decade later, Kenya is exactly where Owino had predicted it would be and he is surprised that people are still having conversations about the debt, a train that left the station long ago and has since crashed.
“I do not talk about debt anymore,” he says, referring to a decade of trying to explain that taking huge commercial loans to fund vanity projects like the Standard Gauge Railway (SGR) would come back to haunt us.
“People can say what they say about David Ndii but he is just right. I am not sure we [economists] managed to pass the message across but somehow it did not get through. We are already in the structural adjustment program; we have been in here since COVID-19. It is like the train has crashed and people are surprised, looking outside, and seeing ambulances and fire fighters. That’s the IMF,” he said.
Ndii has been administering shock therapy to Kenyans on X, formerly twitter, for them to come to terms with the realities of structural adjustment. He recently tweeted:
“Ni maskio hamna ama ni nini? [Is it that Kenyans have no ears?] We are implementing the solution. It is called structural adjustment, IMF programme, austerity, call it what you like. It is painful. There are still plenty of people who lived through the last one in early 90s. Ask them. Choices have consequences.”
Structural Adjustment Reloaded
For Kenya to qualify for the IMF bailouts, the government has had to restructure the economy either by cutting spending or by increasing taxes to attain a primary balance – the difference between revenue and expenditure excluding debt payments. The government has chosen to increase taxes and sell parastatals to raise money for debt repayment.
For Kenya to qualify for the IMF bailouts, the government has had to restructure the economy either by cutting spending or by increasing taxes to attain a primary balance – the difference between revenue and expenditure excluding debt payments.
In a December 2021 country report, the IMF says that “the multiyear fiscal consolidation plan highlighted in the 2021 Budget Policy Statement (BPS) and substantiated by the FY 2021/2022 Budget is premised on a more conservative approach to revenue projections and a commitment to additional policy steps to increase tax revenues and control expenditures under the Extended Fund Facility/ Extended Credit Facility (EFF/ECF) program with the specific objective of anchoring debt sustainability”.
Kenya received the first budgetary support loan from the IMF in May 2020, soon after COVID-19 was reported in the country. The government has since imposed value-added tax (VAT) on petroleum products and Liquid Petroleum Gas, increased capital gains tax, imposed excise duty on data and airtime, Sim cards, bank transactions, bank loan fees, scrapped home ownership tax exemptions, increased excise duty on alcohol, and pledged to adjust excise duty every year in line with inflation.
Kenya has also committed to increasing charges on water and privatizing the most important commodity on earth. The government also plans to privatize scores of state-owned enterprises and will charge toll fees on public roads. The government has also started deducting civil servants’ salaries to fund pensions, is raiding paychecks for a housing levy, and has increased social security and health insurance contributions.
The government is also going after appropriation-in-aid (A-I-A) – fees, fines and levies on government services – with the aim of increasing collections by 35 percent immediately and by 70 percent in just two years. This means that all government services will cost more, from school fees, applications for identity cards and passports, marriage certificates, etc.
The Kenyan shilling has also been devalued, taking a 23 percent plunge in just one year, lighting an inflationary fire on an economy already doused with high energy prices and the aftershocks of a drought and a pandemic.
The Kenyan shilling has also been devalued, taking a 23 percent plunge in just one year, lighting an inflationary fire on an economy already doused with high energy prices and the aftershocks of a drought and a pandemic.
No Country for Old Considerations
The result has been a total collapse in demand and a plunge in sales that has brought in its wake losses for small business and loan defaults as the contagion spreads.
The Federation of Kenya Employers (FKE), which has been conducting a survey on employers to determine the impact of the increased tax costs on jobs, says that preliminary results show that between October 2022 and November 2023, Kenya lost 3 percent (70,000) of the jobs in the formal private sector and 40 percent of employers have reported that they are planning to reduce employee numbers in order to meet the increasing costs of operating in Kenya.
The private sector has come out to demand that the government review some of the taxation measures in order to protect jobs and businesses and avoid an economic collapse.
The private sector has come out to demand that the government review some of the taxation measures in order to protect jobs and businesses and avoid an economic collapse.
CEO of the Kenya Bankers Association (KBA) Dr. Habil Olaka says that the IMF has asked Kenya to move towards fiscal consolidation which could either mean more taxes, cuts in spending or a mix of the two. In his view, the government should carefully look out for policy alternatives rather than just simply resorting to harmful taxation.
“It is an issue of balancing act (…) I do not think the IMF conditions are cast in stone. What they are telling the government is to move in a certain direction which they can do by increasing revenue or controlling costs,” he said.
Olaka also said that the private sector is calling out how the current policies are negatively impacting business, with the private sector staring at an economic crash. They hope the government can heed their concerns and give them breathing space for them to remain operational. The government should also communicate predictable strategies so they can align their plans accordingly.
The Flipside
Kwame Owino, however, says that while structural adjustments are viewed negatively from the point of view of job losses and the economic pain they cause, it is the only way to significantly alter the economy and render it sustainable. Kenya has spent itself into unsustainable debt with most of the resources bled out through poorly managed state companies.
The country needs to cut expenditure below tax estimates including support to parastatals, and to sell the profitable ones to raise money to dig itself out of the debt hole. The sale of state corporations will allow the private sector to grow and run the economy.
Further, Owino observes that structural adjustments are not new; under the Marshall Plan in post-War Europe, the Asian economies after the 1997 debt crisis, and African states in the 1990s, SAPs helped countries to rebalance their books and find new ways to grow their economies.
Libertarian at heart and a hard-nosed economist, the IEA boss is convinced that the outrage over the proposed sale of the Kenyatta International Convention Centre (KICC) and the Kenya Seed Company, among other parastatals, is misplaced because it costs taxpayers more to keep them running than if such conference services or seeds were provided by the private sector.
These liberal ideas – which I first came across in Francis Fukuyama’s End of History and the Last Man at the IEA library – may have just run their course. Three decades ago, just as communism was crumbling, Fukuyama’s 1989 book seemed almost prophetic as communism collapsed and private capitalists’ markets emerged on top.
A capitalist society would be the end of all human political struggle and global markets led by the private sector would solve all problems as governments stepped back to allow the markets to produce efficiently.
Today, his views could not be further from the truth, as globalization is facing its own undoing and the liberal idea that we can outsource supplies has been debunked by the hording of COVID-19 vaccines and supply chain dislocations.
While Kenyans need greater state support to cushion them against bruising inflation, subsidized education and healthcare, neoliberal theorists want the country to spend 70 percent of their taxes on loan payments while eliminating all tax subsidies.
According to the East African Tax and Governance Network (EATGN), in as much as the government has the right to require that citizens pay their taxes diligently and faithfully as per the law, the government also has a duty to provide goods and services such as security, health, schools, infrastructure, and water.
This in essence means applying a human rights-based approach to taxation – the principle that the provision of goods and services by the state is not an act of benevolence but a duty.
“For instance, being hungry (needing food) does not bestow a responsibility on the government to provide for you. But when your ability to provide food for yourself is compromised to the extent that hunger is endangering your life, then the government has an obligation to intervene. Failure to do so constitutes a violation of your right,” observes the EATGN.
Experiments of Cyclical Failure
It should be noted that the IMF is prescribing a painful solution for a problem it helped create.
“Despite following the IMF’s advice for decades, 19 of Africa’s 35 low-income countries are in debt distress or facing a high risk of debt distress. Most countries are now facing an acute cost of living crisis and rising debts, largely owing to external factors such as Covid, the war in Ukraine and rising global interest rates, over which they have had no control,” Action Aid said in a recent report, Fifty Years of Failure: The IMF, Debt and Austerity in Africa.
Kenya’s debt accumulation was prompted by the Fund following the 2008 crisis when the West printed cheap money that was looking for investment opportunities.
In effect, after the 2008 economic crisis, the IMF encouraged African countries to borrow the cheap capital to kick-start their own economies by boosting infrastructure spending. Having received bailout funds at low interest rates, Western bankers went in search of highly rated investments, with most settling on African sovereign bonds that combined high yields with the relative safety provided by government gurantee.
Prior to 2008, only South Africa and the Seychelles had issued Eurobonds. Over the next decade, however, 21 sub-Saharan African countries including Kenya had issued several Eurobonds denominated in dollars.
When the IMF held a meeting with Kenyan officials to discuss the global financial crisis and later met with the Deputy Prime Minister – the then Finance Minister- Uhuru Kenyatta in 2009 to solidify the loan agreements, it urged Kenya to issue a Eurobond to fund its infrastructure ambitions.
“The authorities were considering staff’s proposal to move to a fiscal anchor of total public debt (including domestic and external), in light of increased external borrowing opportunities. Concerning a planned sovereign bond issue, the authorities agreed that its size, costs, and maturity profile needed to be carefully evaluated in order to mitigate potential risks,” reads the IMF Article IV 2009.
However, when the money began flowing into African bureaucracies riddled with runaway corruption and a lack of capacity to absorb the huge loans, it inevitably led to an explosion of procurement fraud, ‘tenderpreneurship’ and vanity projects that are now turning into white elephants with little or no returns for the debt-funded investments.
In Service of Entrenched Policy Orthodoxy
The IMF has returned a decade later to take credit as the saviors of these troubled economies, taking little or no responsibility for its role in creating the mess.
Kenyans first need to understand what the IMF’s role is. This Bretton Woods institution is the multilateral lender of last resort that helps countries that cannot meet their international trade or debt obligations to ensure the stability of the international market. The Fund gives you money when no one else can, and at a cheaper rate since it is meant to stabilize the economy rather than earn interest.
During the release of the 2023 third quarter results of the KCB Bank Group where he now sits as board chairman upon his retirement, Dr Joseph Kinyua – a government insider of 44 years and an IMF guy – tried to explain that the Fund is jointly owned by Kenya and the other member countries.
A highly regarded economist with experience at both the Treasury and the Central Bank of Kenya (CBK), shaping policy across four presidencies, Kinyua is also associated with the IMF, having served as an economist for the multilateral lender between 1985 and 1990.
He said that, unlike the Eurobonds that are lent to governments by commercial banks, the IMF and World Bank are lenders that are owned by governments and hence are not driven by the profit motive – any income they make is put back in the kitty to support member countries.
Kinyua said the IMF and World Bank loans are long-term, sometimes giving a country up to 40 years of repayment, as well as a grace period of about 10 years during which the principal is not repaid. The loans also come at very low interest rates compared to the market prices.
“The interest rate – going back to the time I was a young man working for the IMF – has never changed; it is half a percent and on the World Bank side it is about 1 percent,” Mr Kinyua said.
“Kenyans need to know those two institutions are your own institutions, they are owned by governments and the Kenyan government is a shareholder,” he said.
However, this money does not come without strings attached; the fund will require you to restructure your economy so that you deal with the challenges that brought you to the IMF’s doorstep in the first place.
It has therefore come with the IMF’s typical orthodox approach of one-size-fits-all policy recommendations which prescribe fiscal austerity by cutting spending and raising taxes in line with the Fund’s free-market ideology.
Trouble in Hight Tide or Low Tide
The structural adjustment is, however, being implemented at the worst possible time, when global risks are elevated and Kenya is just recovering from a pandemic, the longest drought in four decades and facing a destructive El Nino season that has left common folks staring at starvation.
The structural adjustment is, however, being implemented at the worst possible time, when global risks are elevated and Kenya is just recovering from a pandemic, the longest drought in four decades and facing a destructive El Nino season that has left common folks staring at starvation.
Even Kwame acknowledges that even though the IMF’s policies may be well intentioned, they could create lasting damage as consumption collapses, losses spread, defaults rise, and companies liquidate.
Owino says that he has witnessed cases of parents unable to afford school fees and people literally sleeping hungry. The government is not even able to pay examiners and the breakdown of the education sector is showing with the crisis of confidence in the credibility of the exams recently administered.
He posits that despite the IMF’s aversion to subsidies, a targeted food stipend for poor homes that have suffered almost 30 percent inflation should have been pursued rather than eliminating transfers and subsidies, then offering tax cuts to importers or deal makers.
“The IMF has given Kenya about 35 conditions; that’s a lot and it is very difficult to keep government focused on all these goals. A criticism to their approach is that they are simply doing too much too fast,” Mr. Owino said.
This article is part of the East African Tax and Governance Network (EATGN) Media Fellowship Initiative as part of the Scaling Up Tax Justice (SCUT) in collaboration with Tax Justice Network Africa (TJNA).
Climate finance requires a minimum of $2.4 trillion of transformative grant-based investment and transfer of technology for climate adaptation and mitigation by 2030. We are nowhere near that target at the end of COP28. Climate finance is a climate debt owed by the historic polluters of the Global North to Global South countries that are on the front lines of climate change. The Global North is in default and is refusing to pay its debt.Subscribe
If you owe me $100, you are supposed to pay me. Instead, you give me a $10 loan with conditionalities to control how I use my money. You give me another $10 in exchange for having control over my forests (aka carbon markets). You invest another $10 in green electricity that I must export to you on favorable terms. You outsource another $10 worth of low value-added added manufacturing to produce cheap consumer goods for you. None of this should count as climate finance. It is a climate debt default green-washed with neocolonial debt traps.
We can stop paying our debt too
If a Global South country defaults on its external debt, the Southern District of New York court will allow Wall Street private banks to confiscate any financial assets that country has in the US banking system including export revenues that pass through the US banking system. We need to establish a climate debt court in the Southern District of the Globe, staff it with the most qualified legal minds from the Global South, and start prosecuting climate debt cases using legal precedents that have been used to impoverish and abuse the people of the Global South.
We are owed at least $2.4 trillion in climate finance by 2030, so we need to withhold and confiscate the equivalent of that debt in cash and in-kind until the debtors come forward and pay their debts in the form of unconditional grants and transfer of technology. Unfortunately, the Global South has yet to build an unbreakable united front. Instead, we see countries settling for bilateral deals that amount to financial crumbs and structural traps. This must change now before COP28 goes down as yet another failed climate finance event for the Global South.
The biggest blind spot of COP28
The debate about reforming the global financial architecture to create a fit for purpose climate finance model is encouraging, but it needs to recognize that the financial architecture is a subset of a global economic architecture that also includes the international trade, investment, and taxation architecture. We are making some progress on transforming the global tax architecture thanks to a recent Global South victory at the United Nations general assembly voting overwhelmingly for a UN Tax Convention.
We are also finally having a serious discussion about transforming the global financial architecture. At COP28, Colombia, Kenya, and France announced the establishment of an independent expert review on debt, nature and climate. The expert group will examine the way sovereign debt is limiting the fiscal space needed to take climate action, decarbonize the economy, and protect nature. This is, of course, a promising initiative to help redesign the global economic architecture.
However, this leave the rules of international trade and investment as the main blind spot in the COP28. There is no mention of the World Trade Organization (WTO), no mention of unfair bilateral trade agreements that are unfavorable to the Global South, no mention of reforming the Trade-Related Intellectual Property Rights (TRIPS) in the context of transfer of technology for climate action on adaptation and mitigation, no mention of the need to overhaul the Investor-State Dispute Settlement (ISDS) mechanism or Investment Court System (ICS) through which Global South countries can be sued by foreign investors if the State takes action that interferes with the investor’s (extractive) business plans.
