Professor Attiya Waris of the University of Nairobi engaged with Professor Odhiambo of the East African Tax and Governance Network on the critical issue of taxation at the lower end of society. The conversation shed light on the challenges and potential solutions for engaging individuals living in poverty in the tax system.
Professor Waris highlighted the complexities of taxing rural communities, where many transactions occur informally and outside the tax base. However, she emphasized that even the poorest members of society interact with the formal economy through purchases such as school uniforms, books, medication, and mobile phone credit, all of which are subject to taxation.
A key proposal put forward by Professor Waris is the creation of a tax-exempt basket of essential goods. This approach would mirror the income tax system, where individuals earning below a certain threshold are exempt from paying. By reducing the tax burden on essential items, this policy could effectively increase the purchasing power of low-income individuals and families.
The discussion also touched on the regressive nature of Value Added Tax (VAT) and the need for reform. While acknowledging recent research suggesting potential redesigns of VAT systems, Professor Waris noted that such changes are unlikely to reach developing countries in the near future, underlining the importance of immediate action to address inequities in the current system.
An intriguing case study from Rwanda was presented, showcasing an innovative approach to poverty alleviation and potential tax engagement. The "One Cow per Family" policy, which began with the government airlifting cows from Germany, demonstrated how targeted interventions can create a ripple effect of benefits within communities. Professor Waris's research in Rwanda revealed a willingness among beneficiaries to contribute a small amount in taxes as a gesture of gratitude for the received benefits.
This example illustrates the potential for fostering a culture of tax compliance and civic responsibility, even among those with limited means. It suggests that when people directly experience the benefits of government initiatives, they may be more inclined to participate in the tax system, albeit at a level commensurate with their means.
The conversation between Professors Waris and Odhiambo underscores the need for nuanced, context-specific approaches to taxation in developing countries. By considering the realities of those living in poverty and implementing targeted policies, governments can work towards creating more inclusive and equitable tax systems that support sustainable development for all members of society.
