Economic justice

LEONARD WANYAMA – Kenya: Fair taxation for economic justice

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For several years that I have been working on this subject, a question keeps coming back. “What are you really talking about with this tax justice case? » Depending on where one is on the spectrum of public finance knowledge – whether it is collection, allocation, spending or penalties in public finance management of revenue – tax justice can generally appear to have many meanings in varying contexts.

Is it just about taxing the rich? Are tax havens the reason the world is rushing to Armageddon? Why should you care about this question anyway? The textbooks simple answer is that tax justice is a call for fair taxation and that the wealthiest people are singled out because their wealth allows them to find tax loopholes, using tools such as tax havens in expense of their respective companies.

Yet it is only when you look at the real world issues facing Africa and other developing countries that you understand the importance of this issue. In a world that suffers from inequality among other challenges, tax justice is one of many sharp-pointed spears in the arsenal for combating the various manifestations of disparity today.

Tax justice focuses first on revenue collection, determining how fair the domestic resource mobilization process is, before linking it to other aspects of the budget cycle, namely distribution, expenditure and national revenue administration. Given the above shortcomings, the tax burden is increasingly borne by the poor or the middle class, thus widening the gap between them and the rich.

Essentially, it is assumed that if injustice begins when taxes are collected, it is guaranteed that it will likely manifest itself again and again in other aspects of how public funds are allocated, spent, or managed. This fundamentally erodes the social contract between an individual and their government as the provision of some basic services is compromised despite the remittance of funds to the relevant authorities who are expected to deliver without fail.

For tax justice to truly work on behalf of the citizen, it must be grounded in human rights principles. This requires that the financial architecture and fiscal systems in place allow for: citizen participation in decision-making; systems accountability; non-discrimination in program implementation; empowerment processes that enhance social mobility; penalty required for transgressions; and legitimacy through the application of the rule of law.

By anchoring these principles, the real benefits of taxation can then begin to materialize in the form of: revenues to fund public services, infrastructure development and ensure the proper administration of initiatives; resources to be redistributed to reduce inequalities between individuals or between groups; and repricing certain goods or activities to limit public “bads” such as smoking, overconsumption of alcohol, gambling addiction, or carbon emissions to mitigate negative consequences.

More importantly, fair taxation allows for true representation in the purest sense of how democracy establishes a healthier system of governance with respect to access to public goods. Additionally, using fiscal policy, taxation can be used to reorganize an economy if the need arises, for example in the case of the COVID-19 pandemic.

Financial currents

So what’s the deal with taxes? When Kenyans are asked this question, most believe that the government cannot meet its revenue targets because some of their fellow citizens avoid paying taxes. Despite the patriotic fervor shown in the call to achieve self-sufficiency through the payment of taxes, they see a wide gap between the high levels of taxation and the poor services provided by government ministries, departments and agencies.

Drawing inspiration from local grievances, what stands out in Kenya, East Africa and the continent is that the reality of public finance is a magnendo (black market) which opposes the noble aspirations of mobilizing domestic revenue. Various forms of wrongdoing – stemming from corruption, the proceeds of crime or the aggressive manipulation of tax systems – constantly color the management of public finances at the expense of citizens.

Such insidiousness results in loss of revenue within and across country borders. However, in addition to illegal financial transfers that contravene national or international laws, there are the immoral aspects of loss of income legally due to tax evasion. Many corporations, especially multinational corporations, aggressively seek tax loopholes to minimize tax liability using these legal means, thereby eroding a government’s ability to meet its obligations to its citizens.

One obviously has the right to minimize one’s taxes as much as possible, but what good does it do for the society in which they operate if the government receives much less (or in some cases zero) tax? How will public hospitals get medical supplies? How will public schools build their classrooms? And how will the public roads to these institutions be built if the government is being denied its fair share of revenue by actions that can best be described as dishonest? Unfortunately, this sin has created an alternate reality where, while it is obvious that tax evasion is detrimental to a country’s efforts to increase its revenue, it is not clear if the actions by which this occurs are outright fraud. And it is these shades of gray that confuse the public and end up annoying them.

Although discussions of issues such as commercial fraud, transfer pricing abuse, double taxation agreements, international financial centres, global minimum corporate tax, beneficial ownership, open contracting, unexplained wealth, asset recovery, among others, can be beyond the comprehension of the common man or woman, they can’t help but notice and complain that much of the tax collected is simply used to repay the debt, decreasing the resources available for development.

While it is obvious that tax evasion is detrimental to a country’s efforts to increase its revenue, it is not clear whether the actions by which this occurs are outright fraud.

So even if we don’t really understand the business models involved, it immediately becomes surprising that SportPesa can sponsor English football teams unlike other big taxpayers like Safaricom or the East African Breweries Limited (EABL) that exist. for much longer. Despite all the claims that Kenya is a Silicon Savannah, one wonders why SportPesa had to pay proprietary fees to its UK affiliate for the software used by punters in Kenya. Was there no one who could develop similar software here? If properly taxed, how much of that money could have gone to settling the national debt or providing services to Kenyans? Not to mention it was clearly offensive when at one point SportPesa threatened to move to Tanzania if his tax issues were not resolved. No wonder Chairman Uhuru Kenyatta was furious when he spotted a SportPesa-sponsored Formula 1 team (which had ignored his insistence that the company pay its back taxes) at the 2019 Singapore Grand Prix .

Yet, paradoxically, it will later be revealed in The Pandora Papers that the president and six members of his family “secretly owned a network of offshore companies for decades. . .” If the leaders reflect who Kenyans are as a people, then he is not alone. Former Deputy Chief Justice of Kenya Kalpana Rawal was mentioned in the Panama Papers. Who knows who else is caught up in the offshore wealth business? It’s no surprise the president hasn’t yet given a full response on the Pandora Papers as he promised.

Meanwhile, a favorable ecosystem that will further facilitate illegal financial flows out of Kenya appears to be taking shape. On the one hand, lawyers are fighting against the implementation of Section 2(c)(i) and Section 14(b) of the Proceeds of Crime and Anti-Money Laundering Act 2021 (amendment) which requires them to report the financial transactions of their customers.

Moreover, before being challenged by the Tax Justice Network Africa (TJNA), the government was signing Double Taxation Agreements (DTAs) left and right with little parliamentary oversight despite constitutional thresholds. Then there is the opacity surrounding the creation of the Nairobi International Financial Center (NIFC).

A conducive ecosystem that will further facilitate illegal financial flows out of Kenya appears to be taking shape.

Mauritius continues to establish itself as a preferred destination for Kenyan companies wishing to reduce their bills. Known names like Naivas, Quick Mart, Tuskys and Nakumatt all seem to have found a tax haven on the island. Centum was quick to adapt its strategy to take advantage of the Kenya-Mauritius DTA and reportedly requested the incorporation of subsidiaries, namely Centum Development and Centum Exotics. It makes the common man and woman wonder why there seems to be a separate system of taxation for the rich and powerful when they cannot escape the aggressive tax agents who today are backed by police .

A new citizenship is the answer

Kenya’s constitutional journey laid the foundation for rights. Yet the building of a great republic isn’t complete until its citizens understand how to wall off and cover their democracy by having a conversation about accountability. This involves civic education which has been somewhat neglected in favor of capacity building programming which has been all the rage in anticipation of the heavy demands of implementing the new supreme law.

The building of a great republic is not complete until its citizens understand how to wall and cover their democracy by having a conversation about responsibilities.

Much like in the fight for Kenya’s Constitution in 2010, citizen engagement is the next frontier of good governance, the building of a civil movement that will move people beyond the symptoms of the many existing problems with which they are familiar with an understanding of the root causes underlying their experiences. This will clarify underlying patterns and lay bare the links between rights and responsibilities, and also create avenues for making claims once authorities, resources and decision makers are clearly identified and consistently engaged to prioritize actions. required.

Increasing the number of individuals aware and aware of the importance, feasibility and urgency of ensuring service delivery is the best guarantee of establishing a social contract that will address past injustices, current problems and emerging threats using available resources appropriately. Thereafter, if, as the saying goes, “nothing can be said for certain except death and taxes”, as the tears of grief caused by the inequities in revenue collection in East Africa , on the continent and in the developing world are a thing of the past while we are still alive.