Can you fund a government from taxes on shopping? I find disconcerting these days the diligence with which KRA officers go through my dirty laundry, looking for shopping to tax. I have never seen it anywhere else in the world, and I have even been to Russia and Ukraine, the most unfriendly spots on God’s earth. The latest taxation measures, including VAT on essentials, are to me the kind of ideology-deprived decisions that an inexperienced government would make; on the recommendations of an accountant, who is very good at counting the beans, but not at seeing the bigger, long-game picture. What do we want to do with this country? If we want to move to a middle-income status by 2030, that suggests an expansion in manufacturing, which suggests some of those things that Vietnam, India, China and other clever Asian countries have done: becoming factories. If you want people to outsource manufacturing to your country, there are a couple of things you must do consistently over many years. First, you must invest in people, specifically health, education, housing and social services. You are not going to grow a world-beating labour force if workers are going to the toilet on newspapers spread out in the living room. Secondly, you want to ruthlessly drive down the costs in your economy. If you tax your workers until they are nearly dead, you will have wage inflation. These days we slap a 30 per cent plus tax on the highest grossing individuals. Taxing more does not mean collecting more. It just means more avoidance. When you tax everything, including rent, how do you expect to have an economy in which costs are low enough to attract international manufacturers? I met a man who was looking for a place to manufacture low-cost cellphones. And China was not in his radar. Labour costs, which he estimated at 17 per cent in that country, were for him too high. So he was looking at Indonesia and Malaysia. Kenya can’t compete with China. What hope does it have of competing with Vietnam? About the only Kenyan manufactured products found in American supermarkets are jeans. This is manufacturing done by Kenyans but insulated from the fiscal madness of our economy. The decision whether to tax workers more or leave more money in their pockets should be determined by the answer to this question: Between the government and private enterprise, who is more efficient in applying resources? Our government is one of the most wasteful entities in the universe. Anything you can buy at Sh100, the government will pay Sh1,000. In its thinking, innovation and use of technology, the private sector is 50 years ahead of the bulk of government. If the public sector were to be given the responsibility of developing housing for Kenya, for example, we’d have a worse crisis: projects would never be completed on time, the costs would be astronomical and the quality crappy. So rather than trying to tax landlords to death, why not provide financial incentives to increase the supply of housing, thereby making home ownership cheaper and rents more affordable? Hard-boiled politicians like Mwai Kibaki, who ran the economy, as Minister for Planning and as well as Finance for 14 years, instinctively knew that there is nothing more important than the basics. If you can’t feed the population, you are out of power. In a Third World country, the greatest threat to the State is the cost of food. #Muthiu.....This is the key
Posted on: Fri, 05 Jul 2013 07:53:09 +0000
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