The high tax rate in Kenya, currently standing at 35%, has become a significant concern for salaried employees. Despite handsome salary increments, the impact is often negligible due to the heavy tax burden. This issue is further complicated by the fact that salary increments are based on a percentage of basic salary, while taxation is deducted from the gross salary. As a result, the higher the salary increment, the more severe the taxation becomes. In essence, the increased salary is almost entirely offset by the taxes deducted.
This disparity is starkly illustrated when comparing the 1.5% house levy deduction to a 10% salary increment. The house levy is deducted from the gross salary, while the salary increment is based on the basic pay only. Consequently, the amount deducted for the house levy far exceeds the actual increment in salary. This glaring anomaly highlights the need for a more equitable tax system.
In light of this, it is imperative that unions join forces to advocate for a reduction in the tax rate to a maximum of 25%. This would effectively translate to an indirect salary increment, providing employees with more take-home pay. The rationale behind this push is simple: even substantial salary increments are rendered meaningless when consumed by taxation. It is high time for Kenyans to realize that high taxation does not necessarily lead to increased revenue collection. In fact, the opposite is true.
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The Laffer Curve, a renowned economic study, demonstrates that higher tax rates can actually result in lower tax revenues. This is because individuals are dis-incentivized to pay taxes when rates become prohibitively high. A glance at other African countries reveals that Kenya’s tax rate is among the highest. Ghana’s tax rate stands at 30%, Nigeria’s at 24%, and Mauritius boasts a relatively low rate of 15%.
While some Western countries have tax rates exceeding 35%, they offer a range of services, including free education and healthcare. Unfortunately, this is not the case in Kenya. Countries in the Nordic region of Europe, with tax rates as high as 60%, provide an array of services in return. However, the Kenyan context is different, and a more nuanced approach to taxation is required.
In conclusion, the current tax rate in Kenya is unsustainable and disproportionately affects salaried employees. By reducing the tax rate to 25%, the government can provide relief to employees and stimulate economic growth. It is time for policymakers to reassess the tax system and work towards creating a more favorable environment for economic development. Only through a concerted effort can Kenya create a tax system that balances revenue collection with the welfare of its citizens.
By Peter Kipkurui Bett
KUPPET Vice Chair, Bomet Branch
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