Posted on

The ticks and fleas of Kenya’s economy

[vc_row][vc_column width=”2/3″][vc_column_text]Have you ever been to the Masai Mara to watch the annual wildebeest migration? It is an awesome sight to behold. My best part is watching as a large herd of wildebeests gets to the point where they have to cross the Mara river, which is teeming with crocodiles. A patina of pregnant expectation fills the air as the wildebeest mill around the steep embankments, mulling the treacherous but inevitable crossing. The crocodiles lick their chomps in readiness. But what is interesting to observe is that it takes a long time before the lone nut, the valiant self appointed leader of the wildebeest takes the suicidal leap into the waters. The few seconds when the first hooves sail in the air is all it takes for the other animals mucking about on the sides to mobilize themselves into a frenzied march of followers. The river then becomes a battlefield filled with thousands of animals cleaving the riverbed for traction and trampling on crocodiles as they cross en mass to the promised land on the other side.

I would be remiss if I failed to talk about the ongoing teacher’s strike which is much like watching wildebeests at the Mara River crossing. The teacher’s union and its members are the lone nuts, the valiant, self appointed leaders of Kenya’s public work force who have decided to take the first jump. They have entered into an unpleasant face off with the government, akin to entering a gunfight armed with a toothpick. The President fired the cannonball last week: “Can’t pay, won’t pay” but the teachers have stayed put. The government’s point remains extremely valid that there’s not enough money to go round. The government recognizes that if it gives in to the teachers, then the other public officers will also want to jump behind them: doctors, nurses, police, civil servants all following the courageous fight demonstrated by the teachers on how to cross the river to the promised land.

But what should worry us more was the headline in last Wednesday’s Daily Nation: “Former councillors demand Kshs 18 billion”. These chaps want to be paid a one off gratuity that comes to Kshs 18 billion and a monthly pension of Kshs 30,000 per ex-councillor which comes to about Kshs 4 billion annually. Listening to the sycophantic soundbytes on radio for support of the councillor’s proposals from two senators who previously held cabinet positions in the Kibaki administration, I realized that our collective sanity as a country fell off the precipice of normalcy when we signed the new constitution. Somehow the new constitution seems to have us all in a catatonic state of hypnosis where we cannot connect the dots between what goes into the government coffers and taxes collected from blood, sweat and tears of production. The same state of hypnosis allows us to view government revenue as a line item of self-entitlement; one that is fair game for all of us to take a swipe at given whatever opportunity presents itself.

But let’s step back to the idyllic wildebeest scene at the Mara River. Wildebeest, like many wild animals, are often crawling with ticks and fleas. The problem with these parasites is that they survive by sucking blood from their very unwilling hosts. The ticks and fleas today are in the form of retired legislators and God knows which other retired constituency who are watching the unfolding teachers drama with relish. The timing of the councilors absurd request for remuneration is suspect and is in complete and utter disregard of the capacity of the government to pay existing public officers.

The teachers have every right to demand for their salary increase. It’s nothing short of appalling to see what a teacher who changes the lives of students earns in a month and compare it to the Kshs 1.3 million monthly remuneration of senators and MPs whose impact on us is, well, let me plead the fifth on my views. A monumental battle has emerged and the battlefield has innocent children as its pawns.

But a crisis should never be wasted. In order to make a fire, you must burn wood. This is a good opportunity for the government to force dialogue on the wastage of resources at both central and county level. The Kshs 100,000 wheelbarrows, Kshs 2 million facebook pages, Kshs 7 million hospital gates, numerous MCA tourism jaunts you name it, we’ve got it. The Kenyan public needs to become angry. Frothing-at-the-mouth-like-a-rabid-dog kind of angry. We need to start connecting the dots between what the government raises in revenue in taxes and what is being embezzled and wasted in the form of high salaries and endemic corruption.

The children twiddling their thumbs at home and the national exam candidates who are currently rudderless in their final countdown to exams will force these conversations to happen at mwananchi level. The dialogue needs to focus on the need for austerity, on the need to bring our collective madness and parasitic greed for government resources to a screeching halt. Sadly this fire of austerity that needs to be created will use our children as the wood to burn itself.

So dear Government of Kenya: Don’t waste this crisis. Ride this crisis tiger. Let it buck and sway as it tries to throw you off. Let the public get angry with you, send out your mouthpieces to start throwing views on the need for austerity and flip that script rapidly to turn the anger on the source of high recurrent expenditure. Wheedle the public to come out of their houses and into the streets to demanding for the end of high salaries to fat cat legislators and an end to the endemic corruption at central and county government level. Let the public wail and gnash their teeth each time parasites like former councilors emerge, demanding to eat from the perceived bottomless feeding trough. Stoke the conversations about ending the power of legislators to define their own salaries. An angry public will support you.

[email protected]

Twitter: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]

Posted on

16 Reasons Why Farmers Think MPs Are Liars

A bus load of politicians were driving down a country road one afternoon, when all of a sudden, the bus ran off the road and crashed into a tree in an old farmer’s field. Seeing what happened, the old farmer went over to investigate. He then proceeded to dig a hole and bury the politicians. A few days later, the local sheriff came out, saw the crashed bus, and asked the old farmer, “Were they all dead?” The old farmer replied, “Well, some of them said they weren’t, but you know how them politicians lie.”

Last week, I started a brief lesson for the 349 members of parliament who were out of office when Tornado VATA hit Kenya, leaving behind catastrophic destruction of the ordinary mwananchi’s cash flow in its wake. Just in case you missed it, Tornado VATA was the VAT Act 2013 that blew through parliament completely unnoticed by its most honorable occupants a few weeks ago. So to my dear parliamentarians, here is another thing you missed while you were away. You significantly hurt the Kenyan farmer and consequently hurt the ordinary mwananchi as you snoozed during the passing of the Act.

I’ll start with the basics. A farmer rears animals that are converted into food -fresh meat- or that produce milk or eggs for example. In order for those animals to create the end product, the farmer has to feed the animals with animal feed especially where he is into commercial production. That animal feed usually consists of about 80% of his production costs. Let me make it a little simpler. That chicken drumstick, T-bone steak or pork sausage that you are going to eat in the parliamentary restaurant today originally came from an animal and not from a supermarket. There are various costs that are borne by the producer of the meat you are about to eat which you need to know about. One of those costs is VAT which is discussed in terms of output and input VAT to those who are in the production of goods and services.

There are three kinds of VAT outputs. Remember that an output is what you charge your customer for purchasing your goods. (ermm when I say “You” I mean the person selling the goods and not you Mr. MP, as you clearly do not sell anything other than your dashing good looks and incontrovertible charm both of which certainly do not attract VAT).

Firstly, your goods can have a 16% VAT output, which is simply 16% charged over and above what the price of the goods is. Secondly, your goods can have a zero rating VAT output, which means that your goods attract a zero rate of VAT. However, zero rating allows for you the seller to claim back from KRA whatever VAT you have paid in the raw materials or input used to produce your goods, known as input VAT. KRA, in its undeniable generosity, allows you to make this claim and then spends the rest of your uncertain life assuring you that you will be paid the refund claim. In the meantime, your buyers get to enjoy your zero rated goods without paying for the 16% input cost which you endured when you purchased the raw materials because you are an honest business man who won’t pass that cost through to your customers and you await your KRA refund fervently. Thirdly, your goods can be VAT exempt. This means that you do not charge VAT for your goods (Amen to that!), but neither can you claim the input VAT that you paid for the raw materials that you purchased to make your VAT exempt goods (Ouch!). Of course, the result is that you include that input VAT into your total cost of production. Tornado VATA shifted a whole bunch of items from zero rated status to exempt status such as medicaments, fertilizers and sanitary towels, so guess where the input VAT costs for the manufacture of those items will go? To the shelf price of those items.
Let me take a break from all the technical gobbledygook before I lose you entirely. The chicken that you will have for lunch today will cost more to buy simply because the price of the animal feeds that were used during the chicken’s ill fated and very short life have increased therefore making for a more expensive production process. The animal feeds costs have gone up because the main raw material in the feeds which comes from millers is now being charged 16% VAT, which was previously not the case as the millers products were zero rated. The cherry on top of that cake is the fact that animal feeds, which were previously zero-rated now attract 16% VAT. So there’s a double whammy for the farmer: The raw material cost of the feed has gone up, as has the final product – the animal feed- gone up as it now attracts 16% VAT.

And since the farmer’s output is unprocessed meat and unprocessed milk – both of which are VAT exempt – the farmer cannot claim the input VAT that she has paid on the raw materials such as the animal feeds which make up about 80% of her costs. So she has to pass through the incremental costs to her buyers. The result, more expensive unprocessed meat and unprocessed milk. The more expensive unprocessed milk is purchased by the dairy producer who processes it and – drum roll please – sells it to us as processed milk with the new added tag of 16% VAT.

Look, I know your eyes are glazing over at this number 16 that I keep thrusting before you. Snap out of it. Life got very expensive while you were away Mr. MP, and you can never ever deny that you were not aware it would happen. I know what kept you busy though: 16 more cars in your garage; 16 more fuel allowance requisitions to submit and 16 more committee sittings to attend to. What’s that? I’m talking lies? I’m not the politician, you are!

[email protected]
Twitter: @carolmusyoka
16th September 2013

Posted on

Filo Baklava Economics

A Greek man went to his bank manager and said: ‘I’d like to start a small business. How do I go about it?’ ‘Simple,’ said the bank manager. ‘Buy a big one and wait.’

The Greek financial crisis may be happening thousands of miles away from our Kenyan shores, but it is one that warrants keen observation as our “Naomba Serikali” [I beg the government] mentality continues to take root in this country. Teachers, nurses, doctors have all been on strike in the last 12 months demanding higher wages. Private sector employers began to get antsy as labor unions started to light fires under employees’ seats rallying them to ask for higher wages due to the rising cost of living. Yet the few voices of reason get lost in the blaring clamor, those voices that whisper that high wages are unsustainable in the long term and make our country uncompetitive. No one wants to hear the naysayers because the latter spews forth bile and negativity at a time when pockets are empty. What we really need to “omba serikali” is to do everything in its power to keep the cost of living down. For instance, to keep the price of basic food low, Serikali would have to go behind the value chain and determining how the production inputs can be maintained or reduced. Those production inputs include raw materials, electricity, fuel and, of course, labor. One way of reducing the cost of these inputs would be in the form of direct grants in the form of subsidies or outright tax waivers. Of course, only a government that is receiving plenty of revenue from taxing productive areas of the economy can provide subsidies and waivers. Without reducing the cost of living, the barrage of salary increase requests will only continue. Which takes us back to why we need to cast an observant eye at the Greek experience.

The Greeks, simply stated, love eating olives and dodging tax with equal measure. An article in the Mail Online of 24th June 2011 sheds light on Greek excesses. Apparently the Greek are allowed to state their own earnings for tax purposes, which figures are rarely challenged. According to the article, only 5,000 people in a country of 12 million admit to earning more than £90,000 a year (Kshs 11.8 million a year or Kshs 982, 500 a month). Yet studies have shown that more than 60,000 Greek homes each have investments more than £1million (Kshs 131 million), prompting one economist to describe Greece as a “poor country full of rich people.”

Manipulating a corrupt tax system, many of the residents simply say that they earn below the basic tax threshold of around £10,000 a year, even though they own boats, second homes on Greek islands and properties overseas.
Even more incredibly, Greek shipping magnates — the king of kings among the wealthy of Athens — are automatically exempt from tax, supposedly on account of the great benefits they bring the country.

The result is revenue inflows that are greatly outmatched by the revenue outflows for the government. If we thought our Kenyan railway system was bad, the Greek railway has an annual income of £80 million from ticket sales, but a wage bill of more than £500 million a year — prompting one Greek politician to famously remark that it would be cheaper to put all the commuters into private taxis. Apparently the average annual salary in the railway company is £60,000 (Kshs 7.8 million or Kshs 655,000 per month) an average that includes cleaners and track workers – which is three times the earnings of the average private sector employee in the United Kingdom.

The icing on this Filo Baklava of a story is that Greek pastry chefs, radio announcers, hairdressers and masseurs in steam baths are among more than 600 professions allowed to retire at 50 (with a state pension of 95 per cent of their last working year’s earnings) — on account of the ‘arduous and perilous’ nature of their work. I’ll stop there. At some point there must have been a severe bout of sunstroke that afflicted Greek politicians and government officials that allowed this insane situation to arise. But the chickens eventually came home to roost as the Government and the Greek parliament have been forced to pass austerity measures that make your bible bashing pastor’s dress code look like swim wear. Kenyans cannot keep increasing salaries for civil servants willy-nilly. It triggers off a domino effect into the private sector and pretty soon we will out price ourselves out of the labor markets. It then becomes unattractive for foreign investors wishing to invest in this economy and also makes our products and services expensive due to the large component of labor costs that go into every unit of production.

The only solution that keeps us in play is by stabilizing and reducing the cost of living, which then makes the shillings in our pocket go a longer way. To do that, the government has to reduce the taxes on fuel, electricity and agricultural inputs such as fertilizers and seeds. The flip side is that to do this, the government has to widen its tax net to make up for the lost income. So the next time your Member of Parliament or presidential candidate asks for your vote, you’d better ask him or her about how they plan to get tax evaders to start paying their dues. For as long as we want to see a growth in the country’s infrastructure such as roads and public mass transit systems, we need to be prepared for the government debt to rise. Someone has to pay for that debt, and I can assure you, it’s you and I through the taxes on our weary backs. Misery loves company, and my presidential candidate has to tell me how he or she intends to add more revenue generators to my tax paying misery bandwagon. Sadly, economic mumbo jumbo is clearly Greek to today’s politicians!

[email protected]
Twitter:@carolmusyoka