Popularly known as Kanjo, Nairobi City Council askaris are often mean looking, violent men who unleash brutal force when clamping down on tax-evading street hawkers. They prowl the city in rundown pick-up trucks with no glass windows, bundling into their ramshackle vehicles hawkers selling wares without licences, extorting out of them up to KSh1 billion annually according to media estimates.
The altercations with hawkers are sometimes fatal and hawkers have been forced to rely on petty criminals who organise protection rackets, using knives and sometimes guns to repel the county tax collectors.
The government now wants to enter into this space with its own national paramilitary-trained door-to-door tax collectors, and it is fast learning an ancient lesson in taxation.
Distance decay
Distance decay is a concept that describes how the relationship between two entities generally weakens the greater the distance between them becomes. In Kenya, certain geographies like informal settlements and remote rural areas virtually lie outside the control of the state.
When the taxman came face to face with this concept when it released into the streets of Nairobi 1,400 Revenue Service Assistants (RSAs) in matching uniforms and badges who had received paramilitary training at the Recruits Training College in Eldoret.
One trader at Imenti House says that when the RSAs – whom he described as very young boys and girls – showed up, at first everyone thought they were Kanjo and they all fled. There exists an unwritten law that when stall-owners are not within their premises, Kanjo askaris do not go in. Blissfully unaware, the RSAs committed a transgression, sparking a heated exchange that nearly turned violent as they were muscled away by the battle-hardened Nairobi traders.
Imenti House – situated along Tom Mboya Street and easily accessible to the state’s security agencies – has one of the largest concentrations of small retailers selling consumer products like electronics and clothing in compartments divided by Perspex walls into tiny retail shops.
Further down in Nairobi’s downtown, all the way to Grogan, is different territory altogether which the taxman’s new recruits will find even harder to penetrate.
Another challenge is that the RSAs are pursuing small businesses under the assumption that they understand tax procedures. The KRA is sending letters and notices and demanding the use of digital collection systems among traders some of whom have no formal education or access to technology, such as the KRA’s eTIMS platform.
In a letter seen by Business Daily, the KRA’s Domestic Taxes Department is demanding from a small trader a sales audit and bank statements going back five years yet most small businesses keep no records given the informal nature of their transactions.
Right to tax
Taxes are easier legislated than collected given that it requires individuals and businesses to voluntarily agree to cede a portion of their hard-earned money for the greater benefit of the collectivity.
Before the modern state, taxes were merely the means by which monarchs and rulers extracted the wealth they needed to live on from people they had violently subjugated. The Biblical Prophet Samuel puts it thus:
This will be the manner of the king that shall reign over you: he will take your sons, and appoint them unto him […] And he will take your daughters to be perfumers, […] And he will take your fields, and your vineyards, and your olive-yards, even the best of them, and give them to his servants. And he will take the tenth of your seed […] And he will take your men-servants, and your maid-servants, and your goodliest young men, and your asses, and put them to his work. He will take the tenth of your flocks; and ye shall be his servants.
After wars had been waged over the geographies within which to extract these taxes, modern states were forged on a new idea that the individual would voluntarily pay taxes in exchange for the state providing the secure, legal and economic condition that would facilitate the growth of private wealth.
Taxation sparked revolutionary movements including the Magna Carta, the Boston Tea Party that led to the American Revolution, the French Revolution and the Yellow Vest Revolution. In Kenya, punitive taxation policies were in part the reason the Mau Mau rose against the British.
Taxes are easier legislated than collected given that it requires individuals and businesses to voluntarily agree to cede a portion of their hard-earned money for the greater benefit of the collectivity.
Modern democracy bestows sovereign powers on the people. Bound by a social contract, we are willing to obey the elected government only if it provides security and if its policies improve our lives and enhance our welfare. Through our agents in Parliament and in the Senate, we create a binding legal system that we adhere to in order to enhance our welfare and our wellbeing.
Most modern constitutions carry a variant of the concept of “no taxation without representation”. In the modern era this means “no taxation without public consent”.
The fact that in a democracy taxes may be levied only by parliament – whose members are elected by the people to serve as their agents – means that tax is the product of collective consent to pay the price for the public goods and services provided by the elected government.
Taxes written in Washington
What happens then, when tax measures are written in Washington? Kenya has agreed to an International Monetary Fund-driven structural adjustment programme that requires the government to, among other measures, review all service charges, fees and licences, and increase the rate and coverage of excise duty and value-added taxes while eliminating the social safety nets provided by subsidies.
These taxes have been forced through parliament as miscellaneous amendments and annual amendments through the finance law. This has hit businesses hard, forcing different segments to fight back arguing lack of consultation, discrimination, and in certain cases double taxation.
Private sector lobbies including the Kenya Bankers Association, the Kenya Association of Manufacturers, Kitengela Bar Owners Association, the Retail Trade Association of Kenya and the Kenya Flower Council, as well as civil society and individual activists, have all sued the government regarding some of the IMF tax measures and won. However, the IMF is having none of it and the government has been forced to appeal, reform and reintroduce the taxes in order to meet set targets.
Kenya has agreed to an International Monetary Fund-driven structural adjustment programme that requires the government to, among other measures, review all service charges, fees and licences, and increase the rate and coverage of excise duty and value-added taxes while eliminating the social safety nets provided by subsidies.
For instance, when parliament introduced the minimum tax at the rate of one percent of gross turnover, Justice George Odunga found that the government’s plan to impose the tax on corporate sales, even when a company reports losses, was illegal.
The Kenyan authorities promised the IMF that they would resolve the court case and introduce new supplementary measures to the tax if they lost the appeal. Having lost the appeal, the taxman has gone to the Supreme Court to defend the government’s right to tax small businesses.
When the High Court slammed the brakes on the 1.5 percent housing levy having found it to be discriminatory as it targeted only salaried workers, the government again insisted it would appeal the ruling. “I know the court has said we should go and read history of the law and make it aligned appropriately. That, we are going to do,” President William Ruto said.
Split with private sector
Confusing tax measures have rendered the business environment unpredictable and unfriendly as the government at once tries to encourage local production while simultaneously increasing the cost of doing business through the imposition of multiple taxes and statutory deductions.
And as the government tries to force businesses to pay taxes without questioning, this is causing increased friction between the state, the private sector and the general population which views it as predatory rather than beneficial.
The Federation of Kenya Employers says the government is sidelining them from decision making, deliberately excluding their representatives during negotiations on labour issues, even as it ignores their appeals against raising the cost of statutory deductions.
“We are facing some challenges regarding our right to representation on tripartite boards. The system of Labour administration should encourage consultation, co-operation, and social dialogue with the most representative organisations of employers and workers. The changes in law should not target weakening tripartism, for example by removing employers from Tripartite boards, committees, and forums,” FKE CEO Jacqueline Mugo said in a statement.
Kenya Bankers Association CEO Dr Habil Olaka said that the increase in taxes is being perceived as going against the tenets of taxation as espoused by Adam Smith who argued that “a good tax” should be certain and not arbitrary, as convenient as possible for the taxpayer, efficient, fair and equitable. This, he said, is forcing the private sector to fight in court.
For much of post-colonial Africa, the principles of good taxation are seldom discussed. Like the police, the taxman wields arbitrary power over the citizens thus hindering the development of “deep democracy”.
Coercive taxation
For those who are not organised into trade lobbies or have the financial muscle to go for litigation, the answer has been to organise into informal protection units – precursors to rising centres of rival political authority and, often, criminal protection rackets.
I am told that, following the altercation at Imenti House, and having received a lesson in how not to collect taxes, the RSAs left and have not returned since. “We called a few of them and tried to engage them after the scuffle and explained to them that they have not educated people to understand their demands before just showing up. Some of these stalls are run by hired help most of whom are uneducated and cannot even understand what they are demanding,” the source said.
The East African Tax and Governance Network (EATGN) says that unless both taxpayers and the government understand the rights and obligations of either party in order to cultivate an environment in which citizens play their role as a moral obligation while governments diligently use revenue with probity and accountability, the process becomes coercive.
For much of post-colonial Africa, the principles of good taxation are seldom discussed.
This understanding is useful for educating citizens on their taxation rights and obligations as well as creating a platform for dialogue with governments on a meaningful and fruitful relationship in which expectations on both sides are met.
“Educating the public about its rights should logically stimulate demand for tax justice while voluntary and complete payment of taxes would translate into higher revenues for the government, and presumably better services. This model puts the citizen at the centre of taxation not only as a source of revenue but also as a campaigner for justice in line with EATGN’s vision of ‘a fair, transparent, accountable and citizen-driven tax system’ as part of economic justice,” EATGN said.
But as the state seeks to enter spaces in which it has invested very little in terms of services and where it scarcely has authority (including in the informal sector), it will face resistance from communities which perceive it as an agent of extraction for the global elites who do not serve their interests. This delegitimises the state’s authority as traders turn to criminal protection to keep state officers at bay, and creates new avenues for corruption and violence.
–
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).
