Lessons from England’s Window Tax for the Ruto administration

The government has adopted extreme measures to raise revenue that has seen more taxation and higher rates/levies charged on other services. FILE PHOTO | POOL By BENARD ALOO More by this Author   

In 1696, faced with mounting debts from wars and a need to finance the government, England implemented the Window Tax to cover revenue lost by the clipping of

coinage. The tax was simple in concept but had far-reaching consequences. Property owners were required to pay a fixed amount based on the number of windows in their homes. It was a banded tax according to the number of windows in a house. The more windows a property had, the higher the tax, ostensibly targeting wealthier members of society. Not long after its introduction, people bricked up their windows to avoid the tax.

As a result, new buildings were constructed without sufficient window accommodation and old buildings had all openings sealed to avoid the tax.  Since the legislation did not offer a definition of a window, and it tended to be interpreted in such a way as to include the smallest of openings in any wall, it was safer to seal any opening but the door. Many attribute this to the origin of the phrase, “daylight robbery”. People felt that the government was literally denying them the pleasures of enjoying daylight and fresh air in their homes. The tax was eventually repealed in 1851.

The Window Tax serves as a historical cautionary tale for governments seeking new revenue streams while ignoring the little pleasures of the common man. While innovative approaches to taxation are essential, it is crucial to balance the need for revenue with the potential unintended consequences, not just to the economy but to the initial goal of revenue collection and to the well-being of the population.

Tax systems should be fair, economically sound, and promote social well-being. The story of President William Ruto’s tax measures is probably one that will be told through songs and drama in years to come. The government has adopted extreme measures to raise revenue that has seen more taxation and higher rates/levies charged on other services. This has seen the cost of living rise exponentially leading to reduced purchasing power by a majority of Kenyans.

The recent survey by Infotrak that revealed 55 percent of Kenyans are unable to sustain themselves due to the challenging economic conditions should sound a call for a less punishing tax regime. The government should consider cushioning Kenyans from the harsh economic conditions than pursuing legacy projects that only put more pain on the already stretched pockets of the population.

Because of its consistency and certainty, taxation is considered a major source of government revenue. As a result, the government which holds the power to impose the tax measures, may be tempted to increase the tax net by levying higher taxes and improving tax collection measures. However, the government seems to make the mistakes England made with the Window Tax in 1696 by simply giving the people a reason to evade/avoid tax and creating the obvious inefficiencies of tax administration. This can result in fiscal erosion and undermine the effectiveness of the tax system.

President William Ruto’s advisors are very much aware that the country cannot tax its way to prosperity. Similarly, you cannot legislate people out of poverty by continuously developing laws that target salaried or privileged Kenyans to shoulder the economic burden of the rest. The Laffer Curve indicates that an increase in taxes can cause a decrease in incentive to work and invest, ultimately leading to a decrease in total tax revenue generated. The tax base will eventually shrink because as the government learns to shoot without missing, so the birds learn to fly without perching.

The “hustler” narrative was about creating opportunities for people to engage in economic activities that bring fair returns. Implementing this plan requires that the government seeks more investment opportunities, foreign and domestic, than imposing more taxes on Kenyans. Unfortunately, high tax rates may lead businesses to cut back on capital expenditures, expansion plans, and research and development activities, limiting economic growth potential and making investors scuttle to tax-friendly countries.

Additionally, high personal income taxes can discourage job creation and lead to stagnant wage growth. No wonder the government is aggressively looking to export labor.

It is probably a good time for the president to revise the promises he made to the country because fulfilling those promises now hinges on the government's ability to forcibly take from others in order to share with the rest.

When the president tells the country that salaried Kenyans are selfish and need to give more to help build the nation, it sends a wrong message on the development model the government is pursuing. According to the World Bank collection of development indicators, only 38 percent of Kenyans are on salaries and wages. Up to 74 percent of these earn less than Ksh50,000, with new reports suggesting that up to 80 percent of the employed are struggling to meet their day-to-day needs!

Like the Window Tax where the poorest, who were more likely to live in houses with fewer windows, were in theory expected to be taxed less, the Kenyan government cannot competently establish the income of the informal sector thus banding it as the underprivileged. 

This principle may generally work when applied to the rural poor but lacks effective ways to alleviate the tax burden on the urban poor who are employed but earn less than Ksh50,000 and a ballooning cost of living.  The Window Tax failed to acknowledge that in towns and cities, the poor lived in large apartment buildings which, however, they had been subdivided, were still considered to be one dwelling house under the terms of the tax, hence subject to heavy window tax assessments.

The Window Tax faced significant enforcement challenges as property owners went to great lengths to avoid or evade the tax and Kenya is facing a similar problem. The tax failed to consider two very essential issues; the extent to which people would go to avoid over-taxation and excessive levies, and the challenges of administering and enforcing the tax structure.

The over-taxation has created a challenging economic environment for Kenyans, hindering investment opportunities – both foreign and domestic, curtailing innovation, and overall prosperity of a huge population. Striking a balance between generating revenue for public services and fostering economic growth is critical for the country’s sustainable development.

The government must as a matter of urgency carefully consider the economic implications of tax policies and design them to promote a healthy business environment and encourage long-term economic development. Because the final consequence of over-taxation is social unrest and dissatisfaction, especially if citizens perceive the unfair tax system is backed by inaccessible public services in return for tax revenue.

Aloo is a strategic communication and international affairs professional.