There is an old cliché about two certainties in life: death and taxes. The grim reality about this is that you can never run away from them – no matter how much you try!
On Monday this week, Rwandans celebrated the ‘2016 Tax Payers’ Appreciation Day’ in Kigali whose theme was “Voluntary Tax Compliance, the Pillar for Self-reliance”. The day was graced by the Prime Minister, Anastase Murekezi, who observed that “all Rwandans and the country’s institutions should fight tax evasion. Those who are not paying taxes should be sensitiSed about the benefits of paying taxes”.
Tax is money that people of a given country pay to their government. It is an obligation, not an option. Money generated from taxation is needed for social services like construction of roads, provision of transport, education, health services, national security and so on. Tax is more than just a source of revenue and growth. Just as excessive tax burdens might hinder growth in wealthier countries, in developing economies a lack of tax structures is a major cause of weak, irresponsive governance. It also leads to an overreliance on aid. With tax, the public can hold governments to account for their decisions and not feel tied to the will of aid donors or to put it more euphemistically, our development partners.
Less than a year ago in the United States, the House of Congress enacted a law that denies or revokes passports of US citizens who do not pay their taxes. Under the law, which came into force in January 2016, the State Department would block Americans with “seriously delinquent” tax debt from receiving new passports and would be allowed to rescind existing passports of people who fall into that category. The list of affected taxpayers would be compiled by the Internal Revenue Service using a threshold of US$50,000 of unpaid federal taxes, including penalties and interest, which would be adjusted for inflation.
The argument for taxes is a very straightforward one: if government is on balance a very positive force in society, then taxes are undoubtedly good. Government programmes are working effectively to solve our social problems and that government is the only way to promote important values like justice and economic security – then the taxes needed to support these government activities and initiatives should be seen as a positive good. Taxes are actually the lifeblood of government and so if government is basically good, then so are taxes.
The idea of spurring development with higher taxes may seem paradoxical, since taxes are usually considered a drag on growth. Yet in very poor countries, which on average collect just about 13 per cent of GDP in tax compared with 34 per cent in the rich world, the opposite is often true: public investment can “crowd in” private investment. “The amount of tax collected is a powerful measure of an economy’s health”, says Kaushik Basu, the chief economist of the World Bank. He further observes that “raising it allows developing countries to invest in education, health and infrastructure, and hence, in promoting growth”.
For our sustainable development, we need to constantly diversify our tax base. For instance, we need to implement the idea of a carbon tax which is one of the most powerful incentives that governments have to encourage companies and households to pollute less by investing in cleaner technologies and adopting greener practices. This would be very much in order given Rwanda’s good performance in the arena of advocating for green economy. Climate change is an environmental and not political event or some kind of vast perverse multi-national hoax and it is dangerous not to be concerned about its impact and the risks it poses to business.
While tax compliance has increased over the years as evidenced by higher revenue targets every year, there is still need to increase awareness on tax payment. The timing for penalties, such as those in countries like the US on revoking of citizens’ passports, may not have come yet but measures to punish tax defaulters should be effected. Criminal penalties should also apply and may result in substantial fines and, where possible, extended prison sentences for those convicted.
One parting shot on tax payment: Everyone should pay their “fair share” of the overall tax burden. Burdens must be distributed more progressively – not principally for the sake of raising revenue, but for keeping the tax system fair.Follow https://twitter.com/@kimanuka