Minimum Tax @ Treasury

 

Minimum Tax @ Treasury

There is a proposal that every business is to pay a mandatory minimum tax of 1% of its turnover. Whichever way you look at that proposal; it does not create any incentive to do business, if I owe the government money for taking the initiative to feed my family. It is unlikely that the proposal was made by an entrepreneur. However, in this regard, I must offer a counter argument to advance the cause of fiscal prudence. One company CEO I worked with a few years ago offered his staff the following advice, “I would rather make 1 shilling from a billion transactions than make a 100 shillings from a thousand customers”. This may be the fundamental logic behind the MAT argument except for one crucial oversight. In the CEOs case, it was the company’s business to generate those transactions. In the government’s case it is not. Safaricom works hard to generate a billion transactions. The government may need to generate productivity before reaping a running harvest. The second nugget is that while a government needs money to run a country, high taxes do not spur economic growth. A survey of tax regimes in African nations indicates that there is a direct negative correlation between high tax rates and economic growth. The tipping point is 8%. Below this figure growth rises exponentially. Above this figure growth declines, stalls and falls between 16-38%. We can learn from available global statistics on tax vs economic growth.

Allan Bukusi

Sources – Business Daily