125 Kenyans wealthier than 43 million people

Kenya’s tax regime has been criticised in a recent report as regressive, as it disproportionately targets poor individuals, contributing to higher levels of inequality in the country.

The report, which reveals that the richest 125 individuals in the country hold more wealth than 43 million people, also found that nearly half of the population live in extreme poverty, below Sh130 per day.

The Oxfam Kenya report states that underfunding in key sectors such as education, healthcare, and agriculture in favour of debt repayment has also contributed to widening the inequality.

More so, the country’s tax regime, the report adds, seems to favour the richest while punishing the poor with little to no effect on their income.

While major corporates bask in incentives, Oxfam says ordinary Kenyans are being driven further into poverty through direct and indirect taxes.

The report titled Kenya’s Inequality Crisis: The Great Economic Divide argues that while taxation has a positive impact on inequality in the county, Kenya is heavily relying on regressive indirect taxes. These are taxes on goods and services such as value-added tax (VAT) and excise taxes which are paid by everyone who consumes taxed goods and services.

“Because people living in poverty spend most of their income on essentials such as food, they are affected the most,” the report states. “Oxfam’s calculations show that tax and government spending increase the income of the poorest 50 per cent by a meagre one percentage point and have neutral impact on the richest one per cent.”

The report further criticises Pay As You Earn (PAYE), saying while progressive – graduating from 10 per cent to 35 per cent – is still unfair as the jump from the lowest bracket (10 per cent) to the next (25 per cent) is steeper than those faced by workers passing thresholds higher up the scale.

“In addition, salaried workers are charged a housing levy at 1.5 per cent and social health insurance at 2.75 per cent. These deductions are at flat rates and thus not progressive, further burdening low earners,” the report says.

It adds that the housing levy is a subsidy to rich contractors and consortium firms, while the health insurance levy is essentially helping to privatise healthcare.

Oxfam says the findings show income from labour is taxed at higher rates than that from wealth.

“Major corporations enjoy numerous tax exemptions. For example, firms based in Export Processing Zones (EPZs) pay no corporate income tax (CIT) for their first 10 years and 25 per cent for the next 10,” the report says.

Nairobi Senator Edwin Sifuna, who attended the launch of the report, described the statistics as grim while adding that they show the true picture of Kenyans’ living conditions.

“This report is what should have been presented in Parliament as state of the nation, not the other one that was read,” he said. “The labour income is taxed more than capital. The government is lazy in terms of growing the number of people to tax that it decided it is going to tax the ones in the formal sector to death.”

He said the constitution documents the kind of country Kenyans desire, citing human rights, equality, freedom, democracy, rule of law and social justice as the anchors.

“That is the criteria for a government, not stadiums, markets, dual carriageways. If your government does not fit in these criteria, you have no business being in government.

Ndindi Nyoro, Kiharu MP pointed out that once the purchasing power of the majority of people has been eroded, even the producers (businesses) will be affected.

He documented that the country’s inequality is also being exacerbated by growing debt that has surpassed Sh12.5 trillion.

“Why is this important to inequality? Some of the borrowings we are doing, for sure, most of it is not going to add utility to the population of Kenya. And the people of Kenya will pay in the later years to come,” he said.

Principal Secretary State Department for Devolution Michael Lenasalon, who represented Deputy President Kithure Kindiki at the event, said the fact that 125 individuals hold more wealth than 42.6 million Kenyans is a statistic that should trouble the conscience of the nation.

He presented the Bottom-up Economic Transformational Agenda (Beta) as the solution as envisioned by the Kenya Kwanza administration manifesto.

“The Beta agenda is our direct and strategic response to inequality,” he said. “Through Beta we are addressing inequality at its roots by investing in job creation, affordable credit, inclusive housing, universal health and social protection among other initiatives.”

He said the report, however, is a turning point and will be analysed to see the possibility of adopting of some of the recommendations highlighted.

“We will subject this report to a detailed interministerial review.  The specific recommendation on taxation, public spending, and social protection will be analysed and used to inform our ongoing policy reforms,” he said.

Amitabh Behar, Oxfam Global Chief Executive mirrored the inequality levels in Africa to other parts of the world. He said in Latin America and the Caribbean, two individuals hold more wealth than 50 per cent of the population.

"In Africa, it is just four persons," he said. "And it is unacceptable. It is a policy failure and political choice that country after country are making."