- With the Kenyan poultry industry on its knees, the government has now responded by banning Ugandan imports.
- Of course, we will now see more chickens and eggs from tax-free Tanzania, Ethiopia and beyond, as long as our eggs and chickens are taxed so heavily.
Being an economist can be a joke, with jokes about whether economists can change a lightbulb, fueled by the vastly different projections of the future they forecast based on whether they take demand as a driver, supply, or believe spending will drive them Multiplier effect have more income and thus create more expenses or not.
Economists agree, however, that more taxes mean less economic growth – which means that a bankrupt, tax-hungry government is definitely a dead hand for economic wealth.
Certainly a less damaging way to deal with excessive government debt is to cut government spending. This leads to a loss of income, especially for government employees, as well as fewer opportunities as a government supplier. But it does less harm to people than big tax hikes and it leads to more growth again, which then drives taxes up.
However, as governments often prefer to continue to increase their spending, our position is not uncommon for taxes to be increased everywhere.
But in this hunt for tax revenue from the productive economy, there are usually better taxes and worse taxes.
Direct taxes on companies, employees and income streams are often touted as a stronger economic blow. Because then all employees have less money for everything, and that affects the demand for food, telephone time, rent and school fees.
However, Kenya is atypical, as very few Kenyans pay income tax. Our officially employed people generate nearly three million taxpayers in our population over the age of 18 from around 25 million. Now each of them will have many family members, but even so, an income tax loss cuts the wallet of less than one in eight Kenyans.
Compare that to the UK’s 30 million plus taxpayers out of a population of 68 million and it shows just how much greater the impact of income tax changes elsewhere.
Conversely, indirect taxes, particularly VAT, are generally viewed as less of a nuisance. In principle, these taxes are levied on “non-essential items”. So if people don’t have enough money to buy luxury, they don’t pay extra taxes either.
However, an indirect tax looks very different once it is introduced into a production line or value chain. Take the VAT on chicken feed, for example. There followed an industry collapse with this introduction of VAT: Since chicken feed causes the greatest costs in the production of chicken meat and eggs, feed costs rise by 16 percent and the prices for chickens and eggs rise.
But Uganda doesn’t have this tax, so its eggs and chickens are still sold at the old prices. The effect has given Uganda’s poultry industry a huge boost after a few years – thank you, Kenyan government – as the cheaper chickens and eggs from Uganda were imported into Kenya. Some of the major Kenyan poultry input producers have done well by simply increasing exports to Uganda for that country’s hugely expanded poultry industry. But the Kenyan farmers were hit hard.
When I first looked at a diagram of Kenyan poultry production, I thought the statistical service made a mistake, the change was so extreme that the entire production line has been falling like a stone since 2017. In fact, more than half a million poultry farmers are said to be fleeing poultry production, caught between rising costs and non-rising consumer prices.
In fact, it’s not just taxes. Our grain industry has been hit by a round of new pests from climate change, and that is getting much worse as Parliament now wants to end Kenya’s pest control – while Uganda continues to have its pest control and therefore cheaper grain feeds cheaper birds.
But when the Kenyan poultry industry was brought to its knees, the government’s response was to ban Ugandan imports. Of course we will now see more chickens and eggs from tax-free Tanzania, Ethiopia and above, as long as our eggs and chickens are taxed so heavily and our neighbors aren’t.
But it’s an equation that completely belies the indirect taxes that fill the budget gap.