A wealth tax on the rich could net up to 125 billion dollars: Oxfam

90
4
A wealth tax on the rich could net up to 125 billion dollars: Oxfam

A wealth tax on Kenya's super rich and high-income earners could result in up to 125 billion dollars in additional revenue, charity organisation Oxfam International says.

Oxfam says in a new report on inequality that a wealth tax of two percent on those with net worth of $5 million Sh 568 million three percent on $50 million Sh 5.7 billion and above and five percent on $1 billion Sh 113.5 billion would net the exchequer $900 million and 102.2 billion is equivalent to a third of the government's total healthcare budget.

A more progressive or punitive tax regime that would raise the rate on the $50 million wealth bracket to five percent and levy on those holding $1 billion 10 percent would net $1.1 billion, or 125 billion, the organisation estimates.

The Treasury has considered introducing a wealth tax or higher top tax rates targeting the rich in the past in order to make the tax system more equitable, but it didn't get the necessary legislative approval for such a move.

Oxfam believes that a wealth tax would first need to be enforced of the laws that compel companies to reveal information on beneficial ownership, helping the taxman identify the high net worth individuals for easy administration.

The pan Africa director of Oxfam International, Peter Kamalingin, said that African countries, including Kenya, need more wealth taxes that are geared towards distributing wealth rather than income.

Taxes on property, ownership of land, income from ownership of land, personal capital income dividends, interest and capital gains tax inheritance and gift taxes should be targeted. The idea of higher top tax rate on high-income earners has been suggested as a way of ensuring that the rich pay their fair share of taxes.

In 2018, the Treasury proposed changes to the Income Tax Act to make a higher maximum tax rate of 35 percent on income of more than 9 million per annum or 750,000 a month. The top tax rate was 30 percent on income over Sh 564,709 per annum or Sh 47,059 a month at the time.

The proposal was withdrawn, with the Treasury citing a lack of public support for it. In other countries, particularly in the West, high earners pay a higher top rate of tax.

In the UK, the top individual tax rate is 45 percent on annual income above 150,000 Sh 23.3 million, while French residents pay a similar rate for earnings above €152,260 Sh 19.7 million. Japan, South Africa, China and Germany also levy their top earners a top tax rate of 45 percent.

American citizens and residents, who pay a top tax rate of 37 percent for earnings over $518,401 Sh 58.9 million per annum, pay a top tax rate of 37 percent.

Neighbouring Uganda has lowered its tax rate for annual income above 120 million Uganda shillings Sh 3.86 million to 40 percent in 2020, from 30 percent previously.

Oxfam warns that adjusting top tax rates or imposing a wealth tax is not the solution to the inequality problem and lack of spending on public amenities in the country, with reforms on fiscal transparency necessary for the impact of these additional taxes to be felt.

The wealthy's tax will not necessarily result in the spending of taxes on public services and social protection. There is no guarantee that increased tax revenues will be spent on poverty and inequality, said Kamalingin. Transparency and accountability are essential so that the public can hold governments accountable for how they spend public funds. A tax incentives that have cost the Treasury billions of shillings in foregone revenue is seen as a good measure to raise additional funds and ease the burden on the few who are actively paying their taxes.

Rich companies are expected to be the beneficiaries of the tax incentives, which are estimated to be worth more than 470 billion, equivalent to 4.6 percent of the country's GDP.

The International Monetary Fund IMF pushed for the government to remove exemptions in Value-Added Taxes VAT, saying that the government needs to improve its revenue performance to cut the fiscal deficit and public borrowing.

Oxfam said that incentives don't guarantee the necessary benefits to justify their existence and lack transparency.