How to craft equitable, fair fiscal policy

Second, tax collectors were not paid an actual wage. They were expected to take extra money and keep some for themselves.

Many tax collectors were dishonest and abused this system. But Jesus, always the champion of the 'downpressed' and despised, gave a narrative that spoke positively of the tax collector, who prays to God with humility as opposed to the 'self-righteous' Pharisee.

Taking into account taxation is as old as Romanic era, the parable raises a key question: How would a good, equitable and fair fiscal system be crafted?

Fiscal policy refers to the decisions that governments make on revenue raising and spending through taxes, cash transfers and subsidies.

This is an important question taking into account taxation is basically moving money from hard working citizens by legal compulsion into some collective pool for application to serve common good of the society.

When can money be utilised more prudently, when it is in the hands of an entity called government or private citizens? Many could argue money is best when it is in private hands since individuals are rational actors who will employ money for rational causes (like education and health) that help a public cause ultimately as opposed to the collective called 'government,' which is predisposed to wastage and corruption.

However, it is settled there are important goods that can only be rendered collectively, like roads and education. Therefore, a good ,equitable and fair taxation system is important .

Three key principles ought to underpin such a taxation system: Government legitimacy,efficiency in tax collection and a good taxation model.

We start with legitimacy. The government, being the entity that taxes, can only collect taxes sufficiently only to the extent it enjoys legitimacy or acceptance by its citizenry. A popular and/or legitimate government will collect more taxes and vice versa ceteris paribus — all factors being constant. In 2003, people lined up to pay unpaid taxes arrears after Mwai Kibaki's Narc win at Kenya Revenue Authority offices in Nairobi that had accrued during the Daniel Moi regime. That is why governments must gain legitimacy in all parts of any country even if this does not necessarily translate into political support.

Therefore, without the necessity of taxing the people more, a government can increase tax collection by merely boosting legitimacy levels. Some basic means of achieving more governmental legitimacy include positive public rhetoric by the political class which give people hope: Fighting elite corruption and displaying public fairness and inclusivity.

Improving tax collection efficiency nets more money without any tax increment. Tax administration is full of loopholes.  Automation is one of the easiest ways of boosting tax efficiency. Propensity of corruption in tax administration increases with every human interaction between a taxpayer and a tax collector. A tax collection system that is impersonal tends to be effective. Personal collection of taxes is practically impossible. Imagine how many employees KRA would need for the 7.4 million active taxpayers.

To achieve this efficiency, the tax collector needs to harness data sharing with strategic entities that mine data continuously whilst respecting privacy laws. Other ways of boosting efficiency is to incentivise formalisation of employment . Millions in Kenya work and get paid 'informally.'.

The third and most important principle refers to the establishment of a model that guarantees long-term economic growth.Taxes can be divided into three: Taxes on what you earn, on what you buy, and on what you own.

Taxes on what you earn refers to income taxes levied on the wages, salaries, investments, or other forms of income an individual or household earns.

A corporate income tax is charged on business profits, which are revenues (what a business makes in sales) minus costs (the cost of doing business). The burden falls not only on the business but also on its consumers and employees through higher prices and lower wages.

One way a country can boost employment is to reduce corporate taxes to incentivise investments .

Taxes on what you buy cover taxing consumption, including the Value Added Tax. Whereas this form can be used by a government to steer consumption towards a certain social and economic direction (like sin taxes levied on alcohol),it tends to be a regressive form of tax (it burdens the poor more).

First, the rich can claim back VAT through input tax, which the poor often cannot. Second, many countries make wide use of VAT exemptions on food to reduce the tax burden on poorer households. While these items often make up a greater share of their consumption basket, richer households also consume these items and in greater amounts.

Taxing what you own includes property. Taxing property is one of the easiest ways a country can raise revenue because land is an immovable economic factor.

On the spending side, some countries use subsidies purportedly to support the poor. Well targeted subsidies can be good in ameliorating poor people’s lives but often they are poorly crafted and they tend to benefit the powerful since they support items that are consumed by all economic classes .And since the well -to-do have more resources ,they will gain more disportionately . However ,cash transfers ,well crafted ,can reach the poor more and have a better impact .

Government spending should be used to finance health, education, and other investments for growth.

- Dr Kang’ata is the Murang’a County Governor; Email [email protected]