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A Nairobi Securities Exchange employee monitors trading at the bourse. The taxman has made an about-turn on the stock market capital gains tax. PHOTO | FILE 

By Boniface Ngahu

In Summary

• Caesar should probably wear soft gloves to make tax paying experience a pleasant one.

This column welcomes the Kenya Revenue Authority (KRA) and the Treasury’s about-turn on the issue of stock market capital gain tax.

As we have argued in the past when taxes or new regulations are imposed, there is a need to assess the likely impact of such taxes or regulations on intended targets’ behaviour beforehand.

For example Market Talk has stated in the past that making solar water heating compulsory for buildings with hot water needs exceeding 100 litres may not work. It may also be cumbersome to implement, for example, in hot areas where people may prefer to use cold water.

We have also argued that sin taxes have their limits. A good example is the tax increase for the affordable Senator beer which may have resulted in many of the previous users of the brand being excluded from ethical drinks market.

This may have resulted in health problems, deaths, or loss of jobs without necessarily resulting in an increase in taxes collected. In future, KRA may have to reconsider that decision and revert to lower taxes for the lower income earners’ drink. All stakeholders will benefit.

There is a behaviour we refer to as BOP loafing which relates to a rich person buying the products targeted at poor markets.

BOP stands for Bottom of The Pyramid in reference to low-income earners. This kind of loafing which has been given as a reason for increasing the tax for the low cost beer is more of an exemption than the rule. The poor people should not be punished because of such rich people’s behaviours.

KRA and the Treasury officials and other regulators need to apply more behaviour studies and thinking before executing taxes or regulations that will face stakeholder resistance. Holding consultations after execution is less productive than doing it in advance.

Every individual or corporate body should obey the laws of the land but prior consultations should make such directives more palatable.

Corporate activism

The Constitution has given a lot of rights to Kenyans. This has also resulted to an orientation towards court battles for issues that can easily be solved out of court. Corporate activism is also on the rise as a result.

The Kenyan stockbrokers had threatened to stop trading in stocks until the case against them being tax collecting agents is heard and resolved. While that may make good business sense for the legal fraternity, it is not necessarily good for progress.

The Judiciary is making an effort to fast track resolution of old cases, the Chief Justice Willy Mutunga has even appealed to Kenyans to consider traditional methods of dispute resolution before going to court.

The point here is that while we may submit to Margaret Mitchell’s line in the book, Gone with the Wind that “death, taxes and childbirth! There is never any convenient time for any of them”, we all know that advances in society have created ways of planning for these certainties which make them more bearable.

Caesar should probably wear soft gloves to make tax paying experience a pleasant one, just like the innovators of painless birth have done to labour pains. Under the gloves, we know there is an iron fist.