The recent outbursts by some politicians in the government regarding the tax affairs of individuals are, to say the least, dangerous for the economy.
Taxpayers' affairs are highly protected by Kenyan law, and cannot be a subject of discussion in public forums and political rallies.
Nobody has the leeway to discuss another person's tax matters unless and until s/he is expressly appointed by the taxpayer as their tax agent.
Not even tax administrators themselves are allowed to make any disclosures regarding an individual's tax matters to unauthorized persons.
In our days in tax administration, all newly-recruited revenue officers were required by law to take an oath of secrecy at the High Court before they could be allowed to access tax files. I believe that requirement has not changed.
When a taxpayer knows that his or her disclosures will be protected, that alone will inspire them to voluntarily provide more pertinent information which may be of use to the tax collector.
In recent weeks, Kenyans have been treated to a perplexing level of carelessness and political immaturity with regard to private tax matters.
It is understandable that when a new administration comes into office, there's bound to be some excitement, and a few of its members may overshoot their boundaries.
That is why the Kenya School of Government exists to shape public servants into what they ought to be; confidential, not easily excitable, trustworthy, and good keepers of secrets.
There's so much confidential information in government that if public servants were allowed unfettered discretion to talk as they will, this country would go to war with itself.
We cannot afford to be in a state of perpetual conflict because of politicians who cannot keep their mouths shut.
The Kibaki miracle
The task of tax administration falls squarely on the shoulders of the Commissioner General (CG) of Kenya Revenue Authority.
The current Commissioner-General, Githii Mburu has demonstrated his mettle for the job and must be given the latitude to discharge his duties and responsibilities without outbursts and intimidation from senior members of the government. Tax administration must never be politicised.
In the three decades that I literally lived in the tax administration and fiscal affairs space, I learnt some vital lessons.
For instance, by the time the Kibaki regime came into office in the 2002/3 Financial Year, tax revenue was very low across most of the tax heads of Value Added Tax, Income Tax and Customs and Excise duties. Pay As You Earn was doing reasonably well, but as we later realised, it too was performing at a sub-optimal level.
The first thing that the new regime did was to try to restore the confidence of the public in the tax system. A general tax amnesty was introduced. Under the amnesty regime, taxpayers were required to pay the principal tax arrears in full, then apply for an automatic waiver of the penalties and interests.
It's noteworthy that under Kenyan tax law, interests and penalties are treated as part of tax arrears that are due and payable. So, with a huge portfolio of tax arrears in the National Treasury's books, a wrong impression had been created to the donors and development partners that Kenya was unwilling to collect taxes from its citizens.
In the circumstances, negotiating for budgetary support became a nightmare.
Tax ignorance
Everyone was pointing to the tax arrears, and wondering why Kenya would be asking for little money from external sources while sitting on billions of shillings in unpaid taxes.
The reality, however, was that the bulk of the tax arrears was uncollectible. Imagine, for instance, that a taxpayer for whatever reason, submits a tax return after its due date.
The tax return may be indicating a nil liability. But, since it is submitted late, the return automatically attracts a late submission penalty.
The penalty begins to accrue interest on a monthly basis. Meanwhile, the taxpayer is totally innocent about what's happening in his or her tax ledgers.
S/he believes that his or her taxes are up to date. To make it worse, nobody alerts him or her of the state of the tax ledgers.
Meanwhile, the taxpayer continues to submit his or her returns annually, some in time, others late, without ever imagining that the late submissions were attracting penalties, which themselves were attracting interest.
Much later, say five years, the taxpayer is slapped with a demand notice for tax arrears running into hundreds of thousands of shillings!
The natural response is to either resign to fate or abandon that business and create a new one to continue with the business of the former. In most cases, such taxes became literally uncollectible.
The taxpayers did not have the money to pay the taxes. This is what I call "Ignorance Tax." The taxpayers are genuinely unaware of the existence of such tax arrears until much later.
Penalties
Similarly, there were taxpayers who had not submitted their returns at all. The practice then was to generate an Estimated Assessment. The Estimated Assessment would create a nominal tax in the taxpayer's ledger.
Unfortunately, such nominal tax is treated as a tax that is due and payable unless the taxpayer submits a return to replace the estimated one. Since the actual return would be late, there would have been generated penalties and interests that required a specific request for waiver.
Waiver of interests and penalties was done at the discretion of the Commissioner, and beyond a certain amount, the application would go to the Cabinet minister.
It would take months before a decision was made on the application for waiver of penalties and interests. In most cases, the Treasury would recommend a partial waiver. That means the taxpayer would be required to pay tax even when the subject return was nil.
All these and other encumbrances clogged the tax administration system and hampered its efficiency and effectiveness.
New Sheriff in town
Many Kenyans were caught up in this web of complex tax law and lethargic, conservative tax administration structures and practices.
The Tax Amnesty 2004 was, therefore, conceived to infuse confidence, efficiency, and effectiveness in the tax administration. It worked. The tax amnesty went hand-in-hand with revenue administration reforms and modernization program.
The program targeted revitalization of human resources, modernization of internal processes and creation of partnerships with taxpayers for a transparent, technology-driven and customer-focused tax administration.
Within one financial year, it was clear that there was a new Sheriff in town. Michael Waweru delivered for the Kibaki government and the Kenyan society at large.
President Mwai Kibaki himself was at the forefront of urging all Kenyans to pay their equitable share of taxes and set the country free. Hence the president's clarion call: "Tulipe Ushuru Tujisaidie."
President Kibaki's idea was to enhance the mobilization of domestic resources to underwrite recurrent and development expenditures, thus reducing dependency on external financing for budgetary support.
At one point during the early years of the Kibaki regime, the country was able to reduce its external budgetary support to about 3 per cent, that is, Kenya was able to rely on its domestic financial resources to finance up to 97 per cent of its budget.
The country had regained its financial independence, national pride, and sovereignty. It can be done.
What was the big lesson that the country learnt from the Kibaki era fiscal management style? Taxation is not an exact science. The tax administration still relies, to a great extent, on the taxpayers' goodwill to voluntarily make full declarations and pay the taxes that are due in time.
In an economy that still relies heavily on cash transactions, it is difficult to trace all income sources and expenditures.
For example, the mtumba people of Gikomba and cattle dealers of Moyale, for the most part, conduct their transactions in cash, thus making traceability difficult.
To bring them to the tax net, the tax administration must first seek to understand their business models, and give them a reason to be part of the nation-building through tax compliance. The tax compliance continuum includes registration, filing, declaration, and payment. It is difficult to enforce tax compliance in a cash economy.
President William Ruto must lead his team in creating the requisite goodwill for Kenyans to improve on their civil responsibility, a key aspect of which is tax compliance.
The government might not achieve the envisaged voluntary tax compliance by adopting an adversarial approach that targets political enemies. Taxation knows no names. The only language that taxation understands is a transaction.
Taxpayers are watching how politicians are handling confidential tax matters in public rallies. The taxpayers' response will be commensurate with the way the government treats them.
The Kenya Revenue Authority has, for about five years, engaged in a transformation agenda that targets the utilization of ICT to promote intelligent tax administration.
This modern approach to tax administration relies more on data and machine learning capabilities to drive its processes, including forecasting, targeting, and interfacing of its systems with those of service providers to obtain clean and less controvertible data for intelligent tax administration. This is a huge task.
KRA doing well
KRA has consistently done very well in the last two or so decades. It continues to benchmark against best practice globally, and the results are beautiful.
The organization and its fraternity require support, and not meddling in its work. KRA is a professional organization. Tax targets are scientifically determined using models, which are in line with global best practice.
Globally, a tax/GDP ratio of 20 to 24 percent is considered super. Kenya is right there. Let politicians not discuss KRA's work in political rallies. Unknowingly, politicians are killing the morale of one of the best organizations in the world.
I am aware that the government has arbitrarily enhanced KRA's revenue targets in the belief that the organization was either protecting some people or was simply lethargic.
Let KRA be allowed to advise the government on tax matters. The ladies and gentlemen at Times Tower know a thing or two that may be useful to the overzealous politicians.
Politicians must not vilify the revenue officers. They are professionals. Please, Mr Politician, do not use KRA to fight your political battles. It will be futile. It will be counter-productive.
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