Kenyans’ tax burden and why President Ruto wants them to pay more

But economist Odhiambo Ramogi argues that focusing on the tax-to-GDP ratio is the wrong remedy.

He says that rather than taxes being too low, tax collection is inefficient and poor governance means that a lot of state spending goes to waste.

The economist points out that despite taxes going up the tax-to-GDP ratio has actually fallen, suggesting that more people are withholding their money.

He attributes this to the effect of the “Laffer curve” – a theory that tries to explain the relationship between taxes and revenue. It suggests that when they go beyond a certain point they reduce people’s incentive to work and pay up.

“High tax rates naturally lead to low collection,” he says.

Mr Ramogi says that countries in the West with high tax rates generally have good public services to show for it.

In contrast, he argues, despite there being many taxes and levies waiting for Kenyans, people still have to “pay school fees, hospital bills, you have to pay for all public services, it’s double taxation all across the board”.

He says that in order to grow, Kenya should first ensure taxes are properly collected and utilised, as well as eliminate corruption – a problem which the government spokesman says President Ruto is already “very clear” in addressing.

Ken Gichinga, the chief executive of analyst firm Mentoria Economics, adds that higher taxes may be self-defeating as they increase the cost of doing business, which leads to closures, job losses and subsequently a reduction in the amount raised from income tax.

There are also some who challenge the logic of the president’s case that raising the tax burden to match some other African countries will necessarily produce a better economic outcome.

Economist and former MP Billow Kerrow mentions two of Africa’s largest economies: Nigeria, which in 2021 had a low tax-to-GDP ratio, and South Africa, which had one of the highest on the continent. In other words, the tax rate is not an indication of the strength of an economy.

“The crazy focus by the government on tax is completely misleading,” Mr Kerrow told KTN television.

But the president appears determined.

“I have a lot of explaining to do,” he said.

“People will complain but I know finally they will appreciate… We have to begin to live within our means.”