Keroche Would Be Paying Ksh.17Bn in Taxes a year If There Was An Enabling Environment To Make It Thrive
KEY POINTS
Companies need capital to generate wealth, and this comes from investors. Corporate taxation penalizes investors and later penalizes employees too as companies invest less.
KEY TAKEAWAYS
High-taxing governments miss the point that wealth is generated within companies and that this wealth is continuously redistributed as remuneration to employees and investors.
As is obvious in any country, the level of corruption, bribery, and dishonesty in the tax system has meant that few people pay the tax they owe, small businesses die, and corporate enterprises are slapped with hefty fines for tax compliance issues.
It is a sad state, really. This is particularly true given that taxation hits different and has varying degrees of impact depending on the form it takes.
Corporate and shareholder taxes, for instance, limit the capital funds available for investments aimed at building a greater and more productive structure. What this means is that growth in the volume of productivity-boosting equipment, facilities, and knowledge resulting in enhanced purchasing power for investors and employees alike — that is, capital accumulation in the economy — decelerates.
Here is a fact, corporate firms are the source of most income circulating in any economy. But of course, their income depends on their client’s wealth but is the company that conducts the actual distribution of income in the economy.
When a firm makes profits, it means it generated more than the cost of production. This could also mean that there was a potential increase in the income for various agents. Shareholders obtain dividends, and employees may see pay rises in the form of profit-sharing.
Any profit that is retained as corporate savings serves to finance a future investment that generates new income to different players including current and future employees. Exorbitant taxes, that is, a system that doesn’t create an enabling environment is therefore equivalent to reducing all these income flows.
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Over the years, corporate taxation has been a great concern in investors’ decisions and hence in economic growth and employment. As one publication noted, “unfavorable or complex and excessive taxation discourages foreign investors, drives out domestic investors, curbs entrepreneurship, and results in deadweight losses due to tax compliance and tax avoidance costs.”
Meanwhile, when taxation is friendly, the tax base is broadened, and this happens when more investments are attracted, domestic investment is encouraged, and entrepreneurship is stimulated. This entails greater tax compliance.
It is important to note that if Kenya had functional tax systems, it should focus on harmonization, reducing, and formalizing the number of taxes and levies affecting businesses.
Corporate enterprises, for instance, face punitive taxation that not only affects savings by the firm but also by its shareholders, who usually face double taxation.
All this is the basis of what Keroche Breweries Ltd is going through currently. Over the past two decades, the company has not had a level playing ground. It has constantly been slapped punitive taxation, on the company and Keroche products at the same time multinational products are zero-rated.
Sadly, many people have a different view on how this whole taxation issue went down. The thing is, being in a position that Keroche right now takes more than just guts – especially in an environment that isn’t conducive.
If all processes relating to the taxman were conducive, Keroche Breweries Ltd would be contributin