(PHOTO CREDITS: Courtesy Citizen Tv)
By
Tom Odhiambo
There is no doubt that the global economy is in recession. In many parts of the world businesses have ground to a halt. The production of goods has slowed down. The services sector is probably worse off than the manufacturing sector. Goods and services often go together.
Bread, milk and tea in a hotel means that a cook, a waiter, a cashier, a cleaner and the supply chain to bring the three commodities to the hotel as well as the transport sector to ferry the workers are financially oiled.
In the short run, millions of workers have lost jobs and livelihoods. In Kenya, the latest government figures only go back to June when it was reported that about 1.7 million Kenyans had lost their jobs from March to mid the year. What will happen in the long run as the recession cuts across the economy is anyone’s guess.
This is why news that the government plans to introduce a 1% tax burden on employed Kenyans is not good news. The proposed taxation is aimed at creating an unemployment insurance fund (UIF), which would be used to offer short term relief to individuals who lose their jobs in times such as these.
The government proposes that the workers will be deducted 1% of their income, with the employer marching it with another 1%.
In the end the employee will pay 2% of her income, considering that most employers will simply pass on the 1% tax onto the employee through a range of mechanisms – lower salary, less benefits, layoffs etc.
Although the idea is sensible, the timing is plain wrong. These are times when business have shut down, or are working at half their capacity, or have laid off staff, or have halved their staff pay, among other measures.
Businesses are strained because they aren’t making money and will naturally struggle to pay taxes. The tax burden for most businesses and individuals has risen significantly.
Working Kenyans generally support a whole set of dependants. There are immediate relatives, then distant kin, friends, colleagues, among others. This is one of those ‘hidden’ expenses that make the life of an ordinary working Kenyan economically nightmarish.
Considering that there is always little chance of one having more than one job – despite the popular claims of a ‘side hustle’ – many Kenyans relying on wages tend to live hand-to-mouth. It is a daily struggle to make ends meet.
In many cases the pay doesn’t meet the basic needs of many a family. Can such individuals afford another tax when they are already overburdened by taxes, formal and informal?
Would employers willingly pay such tax and not retrench more workers? Where did the government get such an idea at such a time? And why are Kenyans not so concerned about the proposal?
It is important to question the value of this suggested tax because the conditions under which it is likely to be introduced aren’t just right. There is need to debate the proposal because no one today knows for sure for how long COVID-19 is going to be around and to continue affecting businesses.
Is this suggestion for the long run or is this some short term measure that will be ended as soon as it is clear that we can operate ‘normally’?
How do the working Kenyans who will contribute to the fund ensure that this is not another milk cow for the politically connected or a source of income for supporters of particular government functionaries? In what specific ways will a retired contributor benefit?
Not many would oppose a fund that cushions those who lose their jobs in moments such as these. For technological and business changes these days no longer guarantee employees the old from cradle to grave.
Very few jobs offer the opportunity to work for one’s entire productive years. And even where one can work till retirement, there is always the worry about retirement.
In fact, too many governments are struggling with their pensions – there aren’t just enough people working to support retirees, or, pension funds can’t find productive and secure investment opportunities.
This means that workers are increasingly being expected to save for their time away from the workplace.
In such circumstance every shilling counts. Every little saving by a Kenyan worker will surely cover them for a rainy day. In this country, where retired Kenyans always have to fight to receive their pension, any money that they can save whilst working – and possibly invest – is worth keeping.
Apart from saving whatever little money they earn or have; many Kenyans don’t live far from pecuniary embarrassment. For some of them, the end of the month – when they receive their pay – can be a difficult period as creditors come calling yet they cannot pay off all their debts.
How do you convince such an economically struggling person to pay more taxes?
The writer teaches at the University of Nairobi. He can be contacted at: odhiambotom@gmail.com or +254720009155
