On the 20th of September 2018, the ferry MV Nyerere capsized in shallow water at the tiny port of Ukara Island on Lake Victoria. Nearly 230 men, women and children drowned, most of them trapped inside the upturned hull. About 40 people were rescued by small boats. The vessel had a capacity of 100 passengers. Many of the dead were buried on the lakeshore, identities unknown, victims of Tanzania’s shoddy, state-run ferry services. President John Pombe Magufuli immediately declared four days of national mourning and flags flew at half-mast on public buildings. “Negligence has cost us so many lives . . . children, mothers, students, old people”, he lamented, ordering the arrest of “all those involved in the ferry.” Three days later, Prime Minister Kassim Majaliwa set up a seven-person Commission of Enquiry led by the former Chief of the Defence Forces, General George Waitara, to establish the cause of the accident and bring those responsible to book. The commission was given a month to report. That was the last the public heard of it, for the commission has shown no signs of life in the twelve months since the accident, during which period the political opposition, media and civil society organisations have kept quiet on the issue of state accountability for the accident. For who else can be held accountable when a state-owned and state-managed boat capsizes? There was no stormy weather to blame. A few commentators, including the state-owned Daily News and commentator Nkwezi Mhango, went so far as to blame the victims for knowingly, recklessly, boarding an overloaded craft. Writing in The Nation, Professor Austin Bukenya recommended “discipline” among passengers who should know better than to clamber onto overcrowded ferries. Presumably, they should wait for the next (uncrowded?) one. . .
Systematic overloading of poorly maintained state-owned vessels, compounded by human error, explains why Tanzanian marine transport is so dangerous. Unknown numbers die when small private vessels—mitumbwi (dug-out canoes) and ngalawa (canoes with sails and outriggers)—capsize. But the large steel boats run by the state are supposed to be orders of magnitude safer than the traditional modes of water transport.
Since the MV Bukoba capsized and sank in 1996, with the loss of an estimated 1,000 lives, Tanzanians have continued to die in large numbers in further ferry disasters, including two in Zanzibar waters within less than a year of each other claiming more than 1,800 lives. To date, no government official or private operator (the Zanzibar ferries were privately owned) has been held responsible for any of these disasters.
Accidents Waiting to Happen
Overcrowding ferries is systematic and intentional. A 200-passenger ferry is allowed to carry, for example, 400 passengers. The 200 “official” passengers are recorded on the vessel’s manifest, the 200 “unofficial” ones are not recorded and their fare is pocketed by the officials responsible for the management and the safety of the ship. Income that should be used for maintenance and repairs is similarly pocketed, leading to regular breakdowns and the suspension of services, thus increasing the overcrowding problem. Those anonymous corpses buried on the beach at Ukara are the “collateral damage” caused by rent-seeking government officials. A ferry service that is privately-owned and managed would deprive these officials of their rents; that is why ferry services remain a state monopoly.
Large-scale accidents on Lake Victoria are therefore arguably the result of a state monopoly of formal ferry services which dates back to the colonial period when the East African Harbours Corporation provided ferry services for the three East African countries. President Magufuli is committed to the improvement of lake transport, but it is taken for granted that the state will run the show. Magufuli has commissioned four new ferries and ordered the rehabilitation of old ones.
Marine Services Company Ltd (MSCL) and Tanzania Electrical, Mechanical and Electronics Services Agency (TEMESA) are the two official agencies responsible for running cargo ship and ferry services on Tanzanian waters. Prior to its incorporation in 1997, MSCL was the marine division of Tanzania Railways Corporation (TRC). The rationale for restructuring MSCL was to make it and other parts of TRC semi-independent “business units” to increase efficiency and profitability. According to its website, MSCL “operates ferries, cargo ships and tankers on Lake Victoria, Lake Tanganyika and Lake Nyasa. It provides services to neighbouring Burundi, DR Congo, Zambia and Malawi.” Over the years, these services have steadily dwindled. While MSCL used to run nine sizeable passenger and cargo vessels, breakdowns and lack of maintenance have left the company with only two. Laid up since 2014, the MV Victoria and MV Butiama are finally being rehabilitated at a cost of Sh26 billion, or $11.4 million, but will not be operational before March 2020 according to MSCL project manager Abel Gwanafyo, quoted by the Citizen newspaper on 8 August. Since the “rehabilitation” is only partially complete (22.5 per cent in the case of MV Butiama) further delays may be expected. The rehabilitation is part of a Sh152 billion ($67 million) shipbuilding and infrastructure development project launched by the President in August last year. At the launching ceremony, Magufuli revealed that he once considered disbanding MSCL but changed his mind because of the “exemplary performance” of the company’s new CEO, Eric Hamissi, in beginning to turn the company around.
While MSCL runs larger ships over longer routes, TEMESA—which is an executive agency under the Ministry of Works—serves short river crossings as part of the road network. Established in 2005, TEMESA operates double- and single-ended Roll on-Roll Off (‘ro-ro’) car ferries, mainly in remote locations where traffic volumes do not justify the construction of bridges. TEMESA’s “mission” involves “running safe and reliable ferry services”, including the ill-fated MV Nyerere. As a result of last September’s disaster, the President summarily suspended TEMESA’s Director General Dr Musa Mgwatu and its advisory board.
Finally, after the MV Nyerere disaster Magufuli took to task the country’s transport regulator, the Surface and Marine Transport Regulatory Authority (SUMATRA), summarily suspending its board of directors. In November 2017, the president signed the Tanzania Shipping Agencies Act which established the Tanzania Shipping Agencies Corporation (TSAC) to take over SUMATRA’s responsibility for marine transport regulation. According to lawyers Clyde and Company, TSAC was to become operational in February 2018. With a narrower scope than SUMATRA, it was hoped that the new agency would operate with greater efficiency and bring increased transparency to Tanzania mainland’s marine transport sector. The appointment of board members from the private sector as well as from government should, according to Clyde and Company, allow TSAC “to operate with an effective commercial approach.” It is unclear why SUMATRA rather than TSAC, was taken to task over the MV Nyerere accident.
The ferries the government commissions for service on Tanzanian lakes are mostly built by Songoro Marine Transport Ltd, owned by Mr Saleh Songoro and Sons of Mwanza. Mr Songoro bought the company—which was set up with aid from the Netherlands—when it was privatised in 1998. Songoro has a good working relationship with Dutch firm Damen Shipyards, one of the world’s largest builders of small ships. But a private shipbuilding monopoly serving monopoly state agencies is not going to solve the problem of inadequate and accident-prone transport services on Lake Victoria. The chronic shortage of lake transport is the maritime equivalent of poor urban public transport, which Dar es Salaam suffered during the days of the Usafiri Dar es Salaam (UDA) public transport monopoly. Private minibuses (daladala) were permitted in 1985, much to the relief of Dar es Salaam’s long-suffering citizens. The inhabitants of Lake Victoria’s shores are still waiting for their maritime daladala to come on stream.
Would Private Ferry Services Reduce the Death Toll?
Would privately owned, privately run ferry services be safer and more efficient than what we have now? It is possible that private services would be equally prone to rent-seeking and inefficiency in the absence of transparent and accountable contracting and regulation. On the other hand, private operators are more likely to maintain their vessels in order to maximise profit than state-run services, where all income flows are potentially vulnerable to self-destructive rent-seeking. They are also more likely to take safety issues more seriously than a state-run service, since private operators are more likely than civil servants to be held accountable in the event of a major accident. Since the ruling elite includes those who have little belief in or respect for the private sector, we could expect a more determined search for culprits and sanctions, especially if the boat-owners were Asians, Arabs or Caucasians.
President Magufuli has been widely praised for instilling discipline in government offices, hospitals and schools and sacking top officials deemed not to be performing and promoting those who are. But accountability is personal, not institutional, and the president clearly does not want to challenge all agencies equally. Since there is no public debate over privatising lake transport, we can expect Lake Victoria ferry passengers to continue being the potential victims of overcrowded and dangerous ferry services.
Kenya Security Council Bid: David Fighting Goliath, Says Djibouti
9 min read. Although endorsed by the African Union, Kenya’s candidacy for one of the non-permanent United Nations Security Council seats reserved for Africa has been challenged by Djibouti and there are no guarantees that the country will get the votes of two-thirds of the Council members in the forthcoming June elections. With both countries arguing that they are the voice of Africa, Kenya will need to defend its track record on matters of international peace and security and address concerns about its reliability as an ally, among other grievances against it. Otherwise, Nairobi may be in for a surprise come June.
The next five months are critical for Kenya in its bid to play a central role in matters of international peace and security. In June, the United Nations General Assembly will vote to decide which of Djibouti or Kenya will take up one of the non-permanent Security Council seats for Africa. Whichever country will be elected will serve for two years (2021-2022). It will be the second time for Djibouti to sit on the Council (1993-1994) and the third for Kenya, which previously served in 1973-74 and 1997-98.
African member states have established themselves as one of the most organised groups in the handling of the rotation of the three non-permanent seats allotted to them. The African Group ensures that each of its five sub-regions (East, West, Central, North and South) has a chance at representation in a rotational arrangement. For instance, in 2019, South Africa replaced Ethiopia which had represented East Africa. In 2021-2022, the seat reverts to an East African country. The Executive Council, the second most powerful organ of the African Union (AU), has the responsibility of vetting candidates for the seats and is advised in these functions by a sub-set of ministers who sit on the Ministerial Committee on Candidatures.
Member states interested in Security Council seats inform the chair or dean of their respective sub-regional group. In case a sub-region submits more than one candidate, the AU Commission requests the chair or dean of the sub-region to hold consultations and present a single country. In most cases, the sub-region agrees to either consider the other candidate for upcoming vacancies in other UN or AU organs including the Peace and Security Council or offers them the slot at the next opportunity. Once consensus is reached, the chair of the sub-region submits its candidate to the AU Commission for consideration by the Ministerial Committee on Candidatures, which meets twice a year (January and June).
When the vacancy for the Eastern African sub-region was announced in 2019, the African Union Commission received the candidacies of both Djibouti and Kenya from the dean of the sub-region, Djibouti. Diplomats based in Addis Ababa with knowledge of the deliberations, argue that this was a conflict of interest on the part of Djibouti; given that its candidacy had made it impossible for Djibouti to play its role of finding a consensus candidate, it should have recused itself and handed over the role of dean temporarily to another country. It did not help that the countries of the sub-region were split between Djibouti and Kenya, with neither enjoying overwhelming support from its neighbours. Therefore, instead of the sub-region trying to find a solution, it kicked the can down the road to the Ministerial Committee.
The Ministerial Committee and the Executive Council were unable to agree on a consensus candidate from either of the two countries during the AU Summit that took place in Niamey, Niger in July 2019. The Executive Council mandated the Permanent Representatives to the African Union (the Permanent Representative Committee) to resolve the matter under Egypt’s leadership as the AU Chair but Egypt was unable to resolve the matter through consensus. It therefore resorted to voting, an unprecedented move on matters of candidacy. In a move that should worry Nairobi and which is not accurately reported in the Kenyan media, it took seven rounds of votes for Kenya to garner the two-thirds majority required to be endorsed. On the first occasion, there were four rounds of votes with neither candidate garnering the two-thirds majority. The second occasion had three rounds of votes where on the third round, Kenya garnered the required two-thirds majority by bagging 37 votes to Djibouti’s 13.
There was expectation that Djibouti would bow out of the race after the August 2019 vote. Instead, Djibouti announced that it was still in the race. Diplomatic efforts to have Djibouti stand down in favour of the African Union-endorsed candidate have faltered. President Abdel Fattah el-Sissi of Egypt brought together President Uhuru Kenyatta and President Ismail Omar Guelleh of Djibouti to discuss the matter at the margins of the United Nations General Assembly in September 2019 but this high-level diplomatic attempt failed. Djibouti has gone ahead and received the endorsement of the Organization of Islamic Conference (OIC) and that of the Organisation Internationale de la Francophonie (OIF).
It took seven rounds of votes for Kenya to garner the two-thirds majority required to be endorsed
As it ramps up its diplomatic charm and campaigns for the seat, Djibouti has sought to present itself as the underdog, David fighting Goliath. Djibouti argues that it was the first to declare its candidacy in 2016 and that Kenya has violated the spirit of sovereign equality of states and the practice of rotation of seats. It argues that for its small size, it has deployed more peacekeepers per capita and that it seeks the seat, not for “self-aggrandisement” but rather to serve Africa. In an underhand attack of the perceived transactional nature of Kenya’s diplomacy, Djibouti presents itself as a “reliable partner” which has a record of working with “UN Member States, large and small, permanent and non-permanent members of the Security Council on ways to advance our common priorities”.
On its part, Kenya has presented a ten-point agenda which it aims to fulfil during its tenure. The first is “Building Bridges”, which seems to be a very politically loaded title to use given the ongoing divisive “Building Bridges Initiative’ at the domestic level. Nairobi argues that it is well positioned to bridge differences between the African Union and the Security Council and to be a promoter of the rule-based international system. It touts its role in peacekeeping with over 40,000 troops deployed over the years. Nairobi argues that it is a regional powerhouse on matters of peace and security and a leader in the fight against terrorism and the prevention of violent extremism. The country hopes to promote the women, peace and security agenda as well as the empowerment of young people. It boasts of its role in humanitarian affairs especially in providing refuge to those fleeing war in South Sudan and Somalia. It also includes justice, human rights and democracy in its agenda. And in a nod to the UN Environment Programme hosted in Nairobi, Kenya lists climate change as one of its areas of focus as well as the achievement of the sustainable development goals.
With both countries arguing that they are the voice of Africa, the positions they take on key international issues in the next few months will be critical for their campaigns. Diplomatic sources intimate that although Kenya has the backing of the African Union, it would be naïve to bank on the support of all the African countries. They argue that the same talking points that Kenya used to rally the support of some members of the African Group may backfire when used in the broader United Nations General Assembly membership. For instance, one African country which changed its mind in the last round of the African Union vote to support Kenya, did so because they were persuaded that it would not be a good idea for Africa to be represented at the Security Council by three countries with an Islamic and French-speaking background. Niger and Tunisia are the current members representing West Africa and North Africa, respectively.
Diplomatic sources intimate that although Kenya has the backing of the African Union, it would be naïve to bank on the support of all the African countries
Djibouti may very well turn round the talking points of the Kenyan diplomats and use them to rally a large section of the 57 members of the Organization of Islamic Conference—which has officially endorsed it—to support its bid. Djibouti has a strong record of support to the Question of Palestine and other Middle East issues. It will certainly continue to play up the maritime dispute between Kenya and Somalia to rally Arab and Muslim countries to its side. Djibouti could also play the victim of an anti-Francophone bias to seek the sympathy votes of the 54 French-speaking countries. Of course Kenya has its share of friends in both the OIC and OIF membership, but it cannot afford to lose any Member State.
Kenya’s waning international standing will further complicate its candidacy. Within the African continent, Kenya is no longer at the centre of political or diplomatic initiatives. This has shifted over the years to Addis Ababa. There was a time when you could not speak of a single African political or peace process without it being hosted in Kenya or mediated by a Kenyan. Presidents Mwai Kibaki and Uhuru Kenyatta decided to take a back seat in these efforts which has denied the country the platform it could have used to campaign for the seat. It is worth noting that Ethiopia’s third bid for the Council seat in 2016 (to serve in 2017-2018) was uncontested. That Nairobi’s standing in the region is on the wane was evident in 2017 when Cabinet Secretary Amina Mohammed failed to get elected as the Chairperson of the African Union Commission, losing to Chad. The recent election of Sudan to chair IGAD, instead of the highly anticipated switch to Kenya, should make Nairobi worried about the long-term implications to its foreign policy agenda, if it has one.
Nairobi is also perceived as running a transactional foreign policy. It does not hold principled positions on issues of international peace and security. Many diplomats are quick to note that, with a few exceptions, Nairobi’s position on any issue is based on the price of the highest bidder. As one diplomat put it, “unpredictability is not good in diplomacy. They will say yes today and tomorrow they will take a different position.” There are many countries who worry that Kenya will continue its transactional approach to Security Council issues at the expense of the interests of Africa”.
Within the African continent, Kenya is no longer at the centre of political or diplomatic initiatives
To be fair to Nairobi, although the elected members ostensibly represent Africa, they hold these seats in their national capacities. They definitely put their national interests first, including economic ones, before the positions of the continent. This is especially so in an era when President Donald Trump openly declares that countries that do not do its bidding will have their foreign aid cut. In Africa, there are many countries which have sanctioned their envoys for jeopardising financial aid by taking principled positions on issues. The most dramatic was in 2002 when Ambassador Jagdish Koonjul of Mauritius was recalled in the midst of a Security Council meeting for not openly supporting a United States resolution on Iraq.
Informal discussions with several diplomats indicate that so far, Kenya is a front-runner for the Security Council seat, boosted by the endorsement from the AU, which will probably be confirmed by the Heads of State at its February Summit. However, the endorsement is non-binding and African countries may choose to vote for Djibouti, abstain or be absent on voting day. Kenya’s squabbling with Somalia, its cozy relations with Ethiopia no longer, the mistrust with Tanzania, the on/off relations with Uganda—including the competition to host the UN Global Service Center among other regional rivalries—means that Nairobi goes into the race without any guarantee of receiving votes from its bloc.
In another sign of the waning support for Kenya within its sub-regional bloc, attempts to present a candidate for the position of Assistant Secretary-General at the 9th African, Caribbean and Pacific (ACP) Heads of State and Government meeting in Nairobi last year were met with strong opposition. Diplomats argue that Kenya’s un-strategic move to seek positions in other bodies during its bid for the Security Council only strengthens Djibouti’s contention that Nairobi is only interested in “self-aggrandisement”. Nairobi could learn lessons from the common Swahili adage, mtaka vyote, hukosa vyote, or from the fable of the greedy hyena.
Djibouti and Kenya seem not to have managed to convince any of the veto-wielding council members (China, France, Russia, United Kingdom and United States) to throw their weight behind their candidacies. Both countries are close allies to the major powers. China has been quick to clarify statements from its officials perceived to be supporting either country. Both candidates have constantly reminded those who care to listen of their unique geo-political significance. However, Djibouti’s location by the Red Sea, which straddles both the Middle East and Africa, cannot be underestimated. By being one of the few countries hosting American, Chinese and French military bases, it has a slight advantage with regards to these three veto-holding Security Council members. Kenya, on the other hand, could argue that as a regional economic powerhouse, it would be the better candidate. But one could argue that having a less economically powerful country on the Council would be more convenient for those interested in buying the country’s influence. A cheaper puppet is certainly better than a costly one.
Many diplomats are quick to note that, with a few exceptions, Nairobi’s position on any issue is based on the price of the highest bidder
As the campaign reaches a critical point, Kenya seems to be scoring an own goal. The decision to move Ambassador Monica Juma from the foreign affairs docket in the midst of the campaign was ill-advised. Lobbying for the Security Council seat very much depends on personal relationships built over time, which the new Cabinet Secretary, Ambassador Rachel Omamo, certainly does not have. It does not help that rather than have a dedicated Permanent Representative in New York, Nairobi decided to copy Djibouti and double-hat its affable and experienced Ambassador Lazarus Amayo to cover both New York and Washington DC. This means that there is insufficient political coverage in both these cities which have a central role to play in the June election. Nairobi will have to rely heavily on its highly respected Ambassador Tom Amollo to pick up the baton.
Nairobi will also need to widen its talking points beyond its ten broad themes. There are still many unanswered questions about its track record on matters of international peace and security. What foreign policy gains can be attributed to Nairobi during its term at the African Union Peace and Security Council? What does the country have to show for its five years as the holder of the Executive Secretary post at the International Conference for the Great Lakes Region (ICGLR)? How has it handled peace and security issues as one of the Deputy Executive Secretaries of the East African Community? What does the country have to show for the 11 years of Ambassador Mahboub Maalim tenure as Executive Secretary of IGAD, apart from Ethiopia’s dominance of the organisation?
Failure to effectively counter these questions and address the concerns about reliability as an ally, among other grievances against it, Nairobi may be in for a surprise come June. This is especially because victory requires a vote by two-thirds of the member states. Djibouti’s task will be to embarrass Nairobi into many rounds of votes, with the possibility of neither one receiving the required number of votes. There have been precedents of inconclusive votes the most recent of which was in 2016 when neither Italy nor the Netherlands was able to muster enough votes. They eventually agreed to split the term. Kenya may end up seeking a compromise of splitting the term with Djibouti, if the latter maintains its current stance. Nairobi still has five months to change tack, otherwise it may continue with its streak of faltering bids for international posts.
Turnover Tax: Days of Extortion, Days of Revolt
11 min read. Informal micro and small businesses are being unfairly targeted by a new tax that is considered by many as extortionist and punitive. How can the government morally justify a tax on a sector it has done little to assist? Will the new tax force these businesses to close down or to revolt?
Our government has decided to extort money from the smallest businesses and is trying to make a virtue of it. Imposing the 3 per cent turnover tax (TOT) on informal micro and small businesses is monstrous, and an insult to poor Kenyans. Though legal, TOT is IMMORAL. I echo the prophetic declaration: “Woe to those who make unjust laws, to those who issue oppressive decrees, to deprive the poor of their right and withhold justice…” (Isaiah 10:1 NIV)
The micro and small-scale businesses, which include kiosks, small grocery stores, hair salons and small market traders (generally those at the bottom tier of the informal sector) now have to pay TOT. TOT is a new tax demanded of any resident person whose turnover from business does not exceed or is not expected to exceed Sh5,000,000 ($50,000) during any year of income. It will be payable from 1st January 2020. This tax rate is on the gross sales/turnover and is a final tax.
Mrs. Elizabeth Meyo, the Commissioner of Domestic Taxes at the Kenya Revenue Authority (KRA), states that “from January 2020, if one operates a salon, butchery, or grocery store, you will be required to declare your sales online and pay the taxes on the 20th of each month.” And for one to get a business licence from one’s county government, one will have to pay an extra 15 per cent of the permit fees to KRA as presumptive tax. In complying to these new demands, Mrs. Meyo further claims, “the business owners will have fulfilled their patriotic duty for a better Kenya”.
Various economic findings acknowledge the substantial contribution of the informal sector to GDP in most developing countries. The informal sector is one of the biggest employers in Kenya, and accounts for over 80 per cent of employment opportunities. It is a shame that attention is turning to this sector only for their moolah, and to bridge the gap resulting from dwindling revenue from the formal sector. According to a Kenya National Bureau of Statistics survey published in 2016, the monthly expenditure on salaries and wages for unlicenced micro small and medium enterprises (MSMEs) was Sh9 billion, which translates to 25 per cent of total outlays a piece.
The neglected informal sector
The colonial market design continues to define the contours of our economy, which conditions us to think of the informal sector as inferior to the formal sector. We still perceive it as “traditional”, marginal or peripheral, having no links to the formal economy and making no contribution to modern industrial development. We have therefore neglected this sector.
Some economists have argued that the informal sector is a dead-end for a pool of labour comprising workers who could not gain entry into the preferred formal sector. Others, like Jeffery Sachs, have even gone to pronounce the informal sector’s obituary, stating that it would cease to exist once Kenya achieves sufficient levels of economic growth and industrialisation.
The informal sector is one of the biggest employers in Kenya, and accounts for over 80 per cent of employment opportunities. It is a shame that attention is turning to this sector only for their moolah, and to bridge the gap resulting from dwindling revenue from the formal sector.
Others see the potential of the informal sector’s small businesses. In his book, The Mystery of Capital (2001), the Peruvian economist Hernando de Soto views these informal businesses as a sign of entrepreneurial dynamism, a real force in the market. They could also be useful in an industrial take-off due to their resilience and ability to withstand market shocks over the long haul, as Shem Watako observed in his doctoral studies of micro and small businesses in Kariobangi.
This hubris in the informal sector has got the taxman’s attention. But the challenge is in how they will implement the TOT. Mrs Meyo identifies this difficulty while responding to why Kenya resorted to TOT for small businesses. She explained that “lack of formal structures and a tax framework that suits the [informal] sector have been major drawbacks in the taxman’s quest to tap revenue from this sector”.
The ethical reasoning of those calling for micro and small-scale businesses to pay taxes as demanded is implausible because it does not raise the second order question. Is it moral to make these demands on the poorest of Kenyan businesses? Is it moral to treat the poor with partiality when the new tax regime would disenfranchise them?
A turnover tax is like a sales tax or a value-added tax (VAT), with the difference being that it taxes intermediate and capital goods. It is on an ad valorem basis (based on the value of the good in question, rather than being flat taxes), applicable to a production process or stage. TOT makes the poor pay another indirect tax, while those whose turnover exceeds Sh5 million pay direct tax, which is a better tax plan for their businesses.
Let us consider a hypothetical case of Nyamulu Beauty Salon, a business run by Achieng’ in Kariobangi, a low-income area of Nairobi, to illustrate this point. With her revenue turnover of Sh100,000 for January 2020, she would enlist for TOT.
NYAMULU BEAUTY SALON, KARIOBANGI TRADER SCENARIO
|ITEM||REVENUE/COST||GOVT TAXES &LEVIES|
|Revenue 100 clients @ 1000||100,000|
|Supplies (oils, hair pieces, etc.)||(30,000)||VAT @16%||(4,800)|
|Rent for stall||(12,000)||Rent Tax @10% Incl||(1,091)|
|Casual workers 2 @500 a day||(30,000)|
|County license||(1,250)||county license||(1,250)|
|Operating Trade Profit||15,900||Total Taxes & Levies||(8,042)|
VAT is standard rated for all goods and services
|SCENARIO 1 -TOT|
|Operating trade profit||15,900|
|Less Turnover Tax||(3,000)||Total Taxes & Levies||(11,042)|
|SCENARIO 2- Personal Income Tax (PIT)|
|PIT -After Relief||(362)||Total Taxes & Levies||(8,404)|
|Net Profit||15,538||Effective Tax Rate||8.4%|
|SCENARIO 3 Personal Income Tax and VAT Registered (PIT + VAT registered)|
|Operating Trade Profit||15,900|
|Add-Input VAT recovered|
|Net Profit/Taxable Income||21,364|
|PIT – After Relief||(1,182)||Total Taxes & Levies||(3,760)|
|Net Profit||20,182||Effective Tax Rate||3.76%|
Scenario 3 encourages small traders to register for VAT, which is passed through to consumers; the net effect is increased transparency and increased VAT collection for KRA.
|TOT||PIT||PIT +VAT Reg|
An alternative tax plan to TOT would give a different result. If the above scenario described her business, then under scenario one, where she paid TOT, her profit would be Sh12,900. Under scenario two, where she pays personal income tax, her profit would be Sh15,538. And if she were registered for VAT and also pays PIT, she would have made profit of Sh20,182.
The individual tax plan would, therefore, be more favourable to the poor income business groups than the TOT. Notice also that her business has contributed indirectly to the government’s revenue by more than Sh8, 042. Then, if subjected to the TOT of Sh3,000, she would have contributed Sh11,042 to the government coffers.
Is it moral for a tax regime to erode the business capital of the poor?
The start-up capital of small businesses usually comes from family resources. This tends to limit the size of the businesses, the number of workers they hire, and the level of profits they generate. So they have a limited amount available to reinvest.
In 2016, the Kenya National Bureau of Statistics found that licenced micro establishments reported spending 45.3 per cent of their net income on investments, either as reinvestment or investing in new businesses and investment in agriculture, while expenditure on household and family needs accounted for 44.5 pervcent. In 2016, small and medium establishments spent a significantly large part of their net income on investment, at 63.4 per cent and 69.7 per cent, respectively.
The erosion of capital from small business via the TOT will delay their growth. Rather, by allowing them to grow capital we would help debunk the notion held by some, including the International Labour Organisation (ILO), that these businesses are doomed to remain small. Yet a significant number of entrepreneurs in the informal sector earn more, on average, than low-skilled workers in the formal sector, according to some studies.
It is immoral to deny the poor a fair chance to compete in the market by imposing a tax on their businesses.
Governments have used taxes to shut out a section of the economy. N. Cheeseman and R. Griffiths (2005) point out that turnover taxes can also be punitive when designed to create a disincentive for buying particular products. They say that environmental regulations sometimes encourage this practice.
Despite the expansive nature of the informal sector, aiming at the bottom end of the pyramid is suspect. We must keep in mind that the current regime is struggling with a debt burden that is uncreative and evil. TOT could be an attempt to cut off informal sector traders from the market. There are 1.3 million micro and small enterprises in Kenya, which, according to a government survey, employed about 2.4 million people – 17 per cent of the total workforce in Kenya – in 2009. They were engaged in the following: close to two-thirds (64.1 per cent) of all enterprises were in the trade sector; retailing made up 62 per cent of all trading in Kenya; manufacturing comprised 13 per cent, while services accounted for 15 per cent.
It is immoral for the government to burden the poor.
In a liberal democracy, argues Prof. Nicholas Wolterstorff of Yale Divinity School, the state should act impartially when distributing burdens and benefits to its citizens. Our government is absent in the lives of poor citizens because of skewed development priorities. The poor live in squalour with children attending overcrowded schools. They have dismal access to healthcare and are the main users of public transport on what is left of roads.
But the government now finds it expedient to tax these businesses operating on the margins of our nation, either in the slums of our cities and towns or in the rural areas. Yet it is through their businesses that low-income households have managed to improve their lot, not through any government subsidies or incentives.
There are 1.3 million micro and small enterprises in Kenya, which, according to a government survey, employed about 2.4 million people – 17 per cent of the total workforce in Kenya – in 2009.
We can use taxes for the public good, to even out the inequalities in society and to provide essential services to all citizens. Eric Nelson, a Harvard professor, explains the idea that the state should coercively maintain an egalitarian distribution of property because it is the business of the state to engage in the redistribution of wealth through taxation, thus ensuring the welfare of the poor; this idea is the genesis of welfare states in many European countries.
Forcing a blanket tax without considering the business conditions of payees is reminiscent of the colonial administration’s hut and poll tax of the 1920s. Then, local leaders and community representatives defended their people against the colonial extortion. Responding to the tax demands, Luo leaders in Nyanza consulted and convened a a general meeting at Lundha in Gem on 23 December 1921. About 9,000 people attended from all parts of Nyanza to discuss the hut tax. During the meeting, Chief Ogada Odera of Gem in Central Nyanza lamented: “As regards our taxes, they used to be 3 shillings. Mr John Ainsworth [the Nyanza Provincial Commissioner in Kisumu from 1906] told us that the amount would be increased to 5 shillings. We agreed. The government then increased it to 8 shillings. It is very heavy. Besides, we do not want our women taxed.”
Forcing a blanket tax without considering the business conditions of payees is reminiscent of the colonial administration’s hut and poll tax of the 1920s.
Chief Ogada made a perceptive comment: “As regards the word colony, the government came here and found us occupying the land and now it calls us ‘wasumbni’ [their slaves].”
Most commentators on TOT have sided with the government’s position and made a virtue of the extortion of poor businesses by calling the tax fair, patriotic, and easy to compute and complete. I think they are misguided. Kamotho Waiganjo reflected this distorted thinking when he commented in the Standard: “But the government was getting no tax benefit from these businesses…those who operate in the formal sector, and who are therefore in the taxman’s spotlight…cough up 30 per cent of annual profits as tax…businesses in the informal sector means that many of the operators in this expansive sector escape the taxman’s dragnet. Not anymore.”
This assumption – that the poor in the informal sector churn out a considerable volume of revenue but do not contribute to the tax pool – is erroneous. TOT is an indirect tax on businesses and not a tax based on income from business profits. Informal sector businesses already pay other indirect taxes that are levied on fuel, electricity, VAT on their goods and rent taxes collected from rental income. Shouldn’t their cost of goods, business expenses, and other costs also be considered, as they are with formal businesses?
Most commentators on TOT have sided with the government’s position and made a virtue of the extortion of poor businesses by calling the tax fair, patriotic, and easy to compute and complete. I think they are misguided.
Some argue that the cost of compliance is low and that all that these small businesses need to do is record their sales. Those paying turnover tax will not need to worry about tracking their expenses; their tax is only on turnover. They say keeping proper business records will benefits business owners because proper records would help them evaluate their business performance, monitor purchases and sales, and make crucial business decisions.
However, the consequences of eviscerating small businesses would be catastrophic owing to sector’s significance in the economy. It may arouse two major reactions from the poor:
First, if the small businesses sense extortion, they may disappear into thin air. These businesses are supersensitive to extortion by the authorities and would hibernate, adjusting their operations till conditions change. The damage in the wake of their disappearance could be devastating. Mr. Francis Atwoli, the Secretary-General of the Central Organisation of Trade Unions (COTU), warned that further taxation on small and medium businesses will not only destroy the fastest growing sector of the economy but also render many Kenyans jobless.
The 2016 Kenya National Bureau of Statistics survey shows that approximately 400,000 micro, small and medium enterprises do not celebrate their second birthday. Few reach their fifth birthday, leading to concerns about the sustainability of this vital sector.
Second, if poor business owners interpret this tax as oppression, they will revolt. Implementation of TOT will conjure up the pain of the colonial era. The colonial hut and poll taxes became a heavy burden on the people of Kenya in the 1920s. B A Ogot (2009:772) observes that it was made worse by the method of collection, which was ruthless and arbitrary. In Nyanza, the colonial regime collected the hut tax from all huts in a kraal, including the cattle sheds. When many people refused to pay these taxes, the colonial authorities, including chiefs and tax clerks, resorted to brutal methods of collection, ordering policemen, chiefs and sub-chiefs to raid villages, set houses on fire, and confiscate property or food stuff such as grains, bananas and cassava.
Since TOT will eat into the livelihood of these business owners, they will revolt. But the authorities will crush their revolt due to their lack the organisational capacity, unlike the UK’s anti-poll tax groups of 1990. Introducing an unpopular “poll tax” is credited for forcing Mrs. Margaret Thatcher out of office in November 1990. The Green Paper of 1986, Paying for Local Government, proposed the poll tax, which charged a fixed tax per adult resident for the services provided in their community, hence the term poll tax. It was a change from payment based on the worth of one’s house to a resident individual. The tax was, therefore, criticised as being unfair, and needlessly burdensome on those who were less well-off. What followed were protests and riots that prompted the abolishing of the tax following the change of government in November 1990.
What should KRA do with poorer businesses?
The government and the KRA, the implementing tax collection authority, can act morally and avoid hurting small-scale businesses. They can make it a priority to rationalise the informal sector rather than wipe it out through harsh tax policies.
Turnover tax, as currently enacted, is elective. Therefore, qualifying small businesses can opt to register for the standard tax system. This move would allow them to be recognised like other businesses. And with sound records, they may take advantage of comprehensive inclusion rules and a reduction process that requires maintaining proof of expenditure. We should make efforts in aiding small-scale businesses to maintain proper business records and wean them into an alternative tax regime.
The government and the KRA, the implementing tax collection authority, can act morally and avoid hurting small-scale businesses. They can make it a priority to rationalise the informal sector rather than wipe it out through harsh tax policies.
This government should heed the words of Hubert Humphrey, the former US Vice President, who on November 1, 1977, said: “The moral test of government is how that government treats those who are in the dawn of life, the children; those who are in the twilight of life, the elderly; those who are in the shadows of life, the sick, the needy and the handicapped.”
The tinders are there waiting for something to ignite them. If the poor interpret TOT as extortion, we may as well have ushered in days of revolt.
 Trader uses Mshwari for working capital, interests at 7.5% per month.
 Allow Voluntary registration for traders who are below the threshold for compulsory VAT registration.
 Cheeseman, N., & Griffiths, R. (2005). Increasing Tax Revenue in Sub-Saharan Africa: The Case of Kenya. Oxford Council on Good Governance, Economy Analysis, 6.
 Ogot BA. 2009: A History of the Luo speaking people of Eastern Africa. Kisumu Kenya Anyange press ltd.
Where Is the BBI Headed?
9 min read. Following the March 2018 handshake between Uhuru Kenyatta and Raila Odinga, a re-setting of a dangerous trend in Kenya is occurring, whose origins can be traced back to the aftermath of the 2007-08 post-election violence. Kenyans have become accustomed to an increasingly irritable and angry president who demands, but is not able to command, unfettered loyalty. But the climate of intolerance that the president is creating is the public face of a deeper and much more insidious plan, an attempt at remarshalling the forces that have preserved the political status-quo in Kenya since independence, at the service of which is the Building Bridges Initiative.
On January 3rd 2018, an article which I co-wrote with April Zhu was published on this platform. Its central premise: many years of political reform in Kenya have failed to muzzle dissent within the political establishment. Exactly three years later, Kandara Member of Parliament, Alice Wahome, seems to have sounded the alarm bells.
Rehearsing the message of her speech during the burial of Charles Rubia, a key figure in Kenya’s struggle for democracy, she castigated Uhuru Kenyatta and Raila Odinga (she described Raila as Uhuru’s new political mercenary for hire) as the “biggest existential threat to Kenya’s declining economy and democracy”. In short, Wahome was referring to the re-emergence in Kenya of a political culture of intolerance directed by the President himself. In fact, Wahome’s statement, coming as it does at the beginning of the year, may set the tone for opposition politics in the run-up to the 2022 general-elections.
But it has also rekindled memories of a sermon by a young Dr Timothy Njoya at St. Andrews Church in Nairobi thirty years ago, which garnered publicity and uproar in equal measure. During that New Year’s sermon, the young reverend remarked on the collapse of authoritarian regimes in Eastern Europe, and speculated about the return of multi-party politics in Kenya, a bold statement at the time. While his speculations would become a reality only two years later, he was immediately rebuked by politicians, all of whom were members of the ruling party, KANU—at the time the only political party in Kenya.
Njoya’s sermon is on my mind as I watch the condemnations that Wahome is receiving for criticising the political establishment. In a political climate akin to the one in which Njoya voiced his remarks, I see the re-setting of a dangerous trend in Kenya, a re-setting whose origins can be traced back to the aftermath of the 2007-08 post-election violence, but which was re-energised by the March 2018 handshake between Uhuru and Raila.
Indeed, since the March 2018 settlement, Kenyans have become accustomed to an increasingly irritable and angry president. He demands, but is not able to command, unfettered loyalty. More often than not, he unleashes in public bitter diatribes in his mother tongue targeted at people who disagree, or poke holes in his leadership. He continues to be on the defensive regarding his under-performing and expensive mega-infrastructure projects.
The climate of intolerance that the president is creating is the public face of a deeper and much more insidious plan. It is part of a wider attempt at remarshalling the forces that have preserved the political status-quo in Kenya since independence, and which the Building Bridges Initiative (BBI) process seems to be in the service of. The shouting down of Kipchumba Murkomen, the Senate Majority leader, during the launch of the BBI report at the Bomas of Kenya last November, and the recent jibes that have been thrown at Alice Wahome for criticising Uhuru, are quite revealing and instructive.
I see a dangerous trend that seems to have been re-set in Kenya, a re-setting whose origins can be traced back to the aftermath of the 2007-08 post-election violence
In an insightful piece also published on this platform, Akoko Aketch contends that the BBI exercise is a crisis of how the long-standing beneficiaries of the political establishment—a distinctly Gikuyu elite—can reproduce their domination “after Uhuru Kenyatta’s disastrous economic record, and of how to avert the possibility of having a president who is hostile to this elite’s interests.” He submits that the “BBI is a revisionist project and a mock test of a political formula that has sabotaged Kenya’s democracy since independence.”
The recent extension of the term of the BBI task-force is, for instance, being perceived as a way of creating more time to introduce radical proposals, such as the creation of the position of an Executive Prime-Minister, a position that, as many have argued, Uhuru will be qualified to assume come the next general elections in 2022. This thinking is not entirely pedestrian. While Uhuru has himself stated that he is not interested in another term as president, the push to change the constitution, his public attitudes regarding opposition politics, and the ongoing re-centralisation of power by the central government (despite devolution), leave a lot of room for speculation.
One way in which the elite in Kenya has reproduced its power is by putting the blame for the country’s woes squarely on the Kenyan public. In this script, underdevelopment and political violence is the work of Kenyans of poor judgement, political dissidents and their often-unemployed youthful followers, not the result of years of unaddressed injustices and skewed redistribution of power and resources. In fact, this line of thinking is one of the primary messages of the BBI report. Dr Wandia Njoya, in a recent article published on this platform, summarised the report as a “declaration of war by the political class against the people of Kenya”. In a painfully convoluted manner, the report, in its attempt to locate, or explain the lack of a national ethos, adopted a language that is not only recriminatory and accusatory, but is also regrettably informal.
Ten billion shillings later—as rumour has it—and more than twelve months after the BBI taskforce was appointed, the report that came out of the process was peppered with an embarrassing number of typos and presented in cheap layout and low-quality typesetting. Seductive images of the nation’s (supposedly egalitarian) past are constantly reproduced and projected, as a way of distracting from the realities of the impunity that has repeatedly been unleashed on the Kenyan public by the political class since the country gained independence in 1963. In a tragic misreading of how morality and communal responsibility actually works in Kenya, the BBI report went ahead to castigate Kenyans for “running away” from their culture, and for demanding rights, as opposed to responsibilities.
One way in which the elite in Kenya has reproduced its power is by putting the blame for the country’s woes squarely on the Kenyan public
This mind-set was alive and well during and after the 2013 elections, the first after the post-election violence of 2007-08. During those elections, which were haunted by the fear of a repeat of political violence, calls for peace intensified, and they immediately became disciplinary and forbidding. People were urged not to protest or question the electoral process. Even the media joined the peace bandwagon and began self-censoring.
In the end, the state regained its dominant position in directing political debate, and the political establishment precluded a potential assault on its privileged position. In fact, the only other time when fundamental reforms would have seen the light of day was during the protracted electoral process of 2017.
But if recent revelations by Dr David Ndii regarding events in the run-up to the March 2018 handshake are anything to go by, the critical part of the drama in 2017 took place off-stage, and the elections became a mere subplot. Seen in this manner, the détente between Uhuru and Raila was, in actual sense, a way of subverting fundamental transformation in Kenya and restoring the status-quo. The BBI, as Wahome has now warned, might be the “special purpose vehicle” for this mission.
The triumph of the system
While many people, including the adversaries of the BBI exercise, had expected that the report would make drastic recommendations that would fundamentally alter Kenya’s political landscape, especially the pure presidential system, the ongoing proposals to create the position of a powerful (as opposed to a prefectural) Prime Minister do not offer much promise either. In fact, whether it is true or not that Uhuru plans to become Prime Minister in a post-2022 arrangement with Raila as President, any cursory analysis of how politics actually work in Kenya will reveal that power (even under a parliamentary system that is not undergirded by powerful decentralised units) will continue to be concentrated at the centre.
The only other time when fundamental reforms would have seen the light of day was during the protracted electoral process of 2017
All politics, power and influence will continue to revolve around the Executive branch, whose control will continue to be grounded in its ability to direct political and economic activity across the country. In fact, combined with the minimal proposals that the report has made to restructure elections, the political party from which the President and Prime Minister will come will continue to dominate all key positions in government, producing the same exclusionary effects of the winner-takes-all system that have ailed the country’s politics since the return to multi-partyism in the 1990s.
As the year progresses, the BBI will prove itself to be an exercise that is merely aimed at reproducing what David Throup and Charles Hornsby referred to as “the triumph of the system” in their seminal book, Multi-Party Politics in Kenya. The first triumph was witnessed in the 1960s. Kenya, like many ex-British colonies, was bequeathed a Westminster-style parliamentary system of government when it became independent in 1963. The independence constitution also made provisions that took away power and significant functions of government from the centralised government in Nairobi, that is, a system of eight regional governments of equal status that was known in Swahili as Majimbo.
However, the parliamentary system through which Kenya became independent was dead by 1964. Kenya became a Republic and Jomo Kenyatta, Uhuru’s father, became its (unelected) first President. The Majimbo regional system, the next target, was abolished together with a post-independence Senate, at the same time as the first opposition party, the Kenya African Democratic Union (KADU), was folding itself, citing frustration from the Executive. By abolishing the Senate, the regional governments and the parliamentary system, the first post-colonial elite-pact of domination, or the first triumph of the system, had completed its mission.
As a result, the “Imperial Presidency” was born. From 1964 to 1992, the year multi-party politics resumed, the constitution had been amended over twenty times. The amendments served to empower the Executive branch of the government at the expense of Parliament and the Judiciary. At the height of this madness (in 1990), the office of the president (OP) included a staff of 43, 230, representing a ratio of 1 in 6 civil servants. The OP became a parallel government, with considerably more executive power than actual ministries. The instability that such a structure of government can introduce in a political system—where inequality and regional imbalances are rife, and where ethnicity is inexorably intertwined with how political representation and redistribution actually works—became clearer with the reintroduction of multi-party politics in 1992. Trust among the political elite became fickle, leading to the instrumentalisation of violence and ethnic identity in the political marketplace.
After many years of struggle for reforms, the structure of the “bureaucratic-executive” government, at the head of which was the President, survived with minimal alterations. The only significant structural change, many have argued, was the introduction of forty-seven devolved units. However, the mandate of county governments was significantly reduced compared to that which was allocated regional governments in the 1960s. Responsibility over land administration, education, mega-infrastructure and parastatals remained in the hands of the central government, and as such, under the direction of the presidency.
Raila Odinga, who had become the political champion of constitutional reform, especially the proposal to introduce a parliamentary system and strong devolution by 2007, gave up on these demands after the outcome of that year’s elections. At the Great Rift Valley Lodge in Naivasha, where the Parliamentary Select Committee made up of 14 Party of National Unity (PNU) members and 13 Orange Democratic Movement (ODM) members that had been selected to respond to the first harmonised draft that would become the 2010 constitution had met, people feared that the politicians would not find common ground, risking a return to conflict. Indeed, disagreement reigned but some deals were struck, of which the most important—which removed the blockage that threatened a deadlock in the discussions—was made by Raila and Uhuru (reportedly in a room at the lodge). The deal saw ODM let go of the parliamentary system altogether, in favour of the presidential system. In addition, Raila (who at the time was Prime Minister in a coalition arrangement with former President Mwai Kibaki) relaxed his demands for strong devolution, that is, a three-tier decentralised system of government in favour of the two-tier system that was favoured by PNU. As a result, the 2010 constitutional draft provided for a pure presidential system. Pure in the sense that, not only would cabinet ministers be appointed from outside of parliament, but losers of presidential elections, no matter how many votes they had garnered, would not be accorded any public office. The draft also scrapped the regional tier of government, and fixed the number of parliamentary constituencies at 290. Nothing much changed after that.
County governments were quickly reduced by central government bureaucrats to units of administration and development, as opposed to political representation
During the parliamentary debate over the draft that took place in mid-2010, ODM MPs—notably James Orengo—continued to push for the regional governments. Raila had already hit the streets, campaigning for the draft. Orengo was left alone. The draft was eventually promulgated in August 2010, after winning the popular vote at a referendum. The powerful presidency—with slight alterations—triumphed.
Tunakula nyama: politics since 2013
County governments came into place after the 2013 general elections, but they were quickly reduced by central government bureaucrats to units of administration and development, as opposed to political representation. Feelings of exclusion and marginalisation, underpinned by unaddressed historical injustices, continued to exist, despite constitutional change. The pure presidential system that the 2010 constitution provided had worked to the disadvantage of Raila Odinga—who lost both the 2013 and 2017 elections to Uhuru.
Between the two elections, Raila held no public office, yet he continued to exercise personal influence over vast swathes of the country, where ODM, his party, had won considerable numbers of constituency and county seats. To the chagrin of many who felt unrepresented at the centre, Uhuru stated, rather arrogantly, that they—the government in power—were eating the nyama choma [roast meat] and that those who were in the political cold should be content only with the smell. A number of times, Raila would instigate programmes—most notably, the Okoa Kenya initiative—which, incidentally, were part of his attempts to change the 2010 constitution, but which, one could also argue, were part of his struggle to remain politically relevant.
Raila’s strategy did not yield the expected results, but it had its uses. It proved that Raila was adept at combining his political fate with that of his supporters. In this way, the anger of Raila supporters that followed the announcement that he had lost the elections in 2013, and then again in 2017, could not be separated from the perception that they, also, had been excluded from the political process for many years. Following this logic, the feelings of exclusion felt by many of Raila’s supporters after the 2017 elections could only be addressed if Raila himself were to become part of the Executive—very similar to the situation in 2007-08.
While it had become apparent, after the 2017 elections were concluded, that Raila was the biggest victim of a constitution that he had done much to support, his move to “shake hands” with Uhuru was more the result of defeat at challenging the political establishment over the years than it was an effort to usher in fundamental political reforms. What is more important to consider is that Raila’s support of the current Presidential system in 2010 was also the result of an elite-pact with none other than Uhuru Kenyatta, his current partner in the BBI settlement nine years later.
These developments, where the political establishment that has been at the helm since the 1960s is seeking to maintain its hold on power and control, should concern Kenyans. Despite arguments to the contrary, much talk about the BBI will be about political positions, and as the current climate of political intolerance continues, fundamental questions regarding exclusion, injustice, and accountability will be glossed over, as has happened before.
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