Taxation and State Building in Kenya: Enhancing Revenue Capacity to Advance Human Welfare

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What is the relation between tax and democracy? What links can we make between revenue collection, human rights and human welfare? Are tax concessions justifiable?

The Kenyan state is today one of the most active tax collecting states in Africa, at 22.14 per cent of tax per GDP in 2007/2008. However this burden is borne primarily by consumption and import levies, leaving vast parts of the economy outside the tax net. The tax burden in Kenya needs to be spread more equally.

Governments need money. Modern governments need lots of money. How they get this money and whom they take it from are two of the most difficult political issues faced in any modern political economy” — Sven Steinmo

The Importance of Tax

No single person can debate the importance of state revenue and the effect that it has on the economy and on people that are taxpayers on the ground. In Kenya, taxation has played a key role of defining both its political non-alignment and national development since independence in 1963. Kenya has also experienced more stable economic and political development than many other African countries, meaning that tax reform process has been more gradual, albeit none the less secretive.

It is the conviction of the authors that tax systems can play a key role in both furthering democratic representation, and ensuring higher standards of well-being through wealth and employment creation in the country. It is in this light that we talk of tax systems, rather in the technical terms of simply raising revenues, but rather in terms of social development.

The Purpose of Tax in State Building

There is a need to assess how a welfare state can be funded in Africa1. This is an interesting argument and may prove to be the link between human rights and taxation. The concept of the welfare state developed in Europe as a response to industrialisation and an increasingly mobile peasantry who needed to be protected by the Poor Laws and other rudimentary welfare programs. There is a clear link to be made between early 19th century Europe, and contemporary Africa in terms of moving from poverty programmes to social security funded through taxation

Before a state can protect its citizens, it needs to raise money to finance the governance structures required. Through its key role as the tie that binds the ruler and the ruled, taxation supports representation, accountability and state capacity. Sources of revenue in developing countries include not only taxation, but also earnings of state owned enterprises, royalties, etc. Foreign aid and grants may at times be the major source of revenue.

For purposes of accountability to citizens it is better to maintain the separation between the state income and donor aid, as there is no evidence that aid improves governance. Such separation ensures that government does not only rely on development funding from foreign sources. Instead, foreign resources should be used to fund development activities from the budget; and secondly, citizens rather than donors should hold governments accountable for the lack of activities
We can talk of political ‘underdevelopment’, as the ways in which developing states have been created and their political authority moulded by economic and political interactions with the wealthier countries of the North. Mick Moore alludes to what he terms ‘unnatural birth’ which he sees as the rapid formation of states through colonisation as being inherently flawed5.

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Taxation and State Building in Kenya: Enhancing Revenue Capacity to Advance Human Welfare
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