State has no right to tax Jua Kali
- The informal economy evolved in its own dynamics and created its own institutions to survive in the racialised and elitist economy.
- Jua Kali could very well pay taxes — just as they do tithe and other obligations — had the government been fair and just in its policies.
The government has seen it fit to widen the tax bracket to include Jua Kali, a sector comprising self-reliant individuals who create jobs for themselves with limited resources to help them and their families.
But how did we arrive at the fact that small and medium enterprises (SMEs) do not pay tax, hence the Turnover Tax (TOT)? This has deep historical roots of racialised and elitist economies in the colonial and postcolonial policies.
In 1928, the first bylaw that classified businesses in Nairobi labelled all African businesses as hawkers while European and Asian counterparts were the normal and proper ones to be given space to work in.
Africans were to walk with their business or given temporary places for occupations. The bylaw has since been revised but the spirit has not changed.
The underlying fact was that the Africans belonged to the rural areas (where they would eventually return).
Their form of economy was only to allow them to get by; not the mainstream businesses to generate revenue and employment.
This created the base for a dual economy in the city: formal and informal and temporary. Efforts in the 1950s to accommodate Africans in the formal businesses did not integrate the two models of business.
The postcolonial State was eager to modernise. But it did not look into the informal businesses as a solution for economic development; it created parastatals and invited foreign investors to engage in import substitution business.
Parastatal and foreign investors became the mainstream businesses, which were supposed to create revenue and jobs.
The informal economy was a stopgap measure where the reserve army of workers could subsist before the benefits of modernisation could be realised.
With the structural adjustments in the second phase of the postcolonial State in the 1980s and ‘90s began the downfall of import substituting industries and parastatals. Their products could not survive the competition from imports.
The informal economy, however, got an impetus; the UN viewed it as the safety net for the workers who were being retrenched and suffering communities.
Prof Macharia Kinuthia observes that the new arrivals found a home in the informal economy, which had also entrenched itself in the city.
The ideological position of the informal sector as a community economy where individuals help themselves did not, however, change.
The government never considered it as mainstream; it hoped that the formal economy would recover and continue to generate revenue. Hence, the informal economy continued to entrench itself in the city.
The third phase of the postcolonial State did not even consider the informal economy as a strategy.
It is the Kenya Vision 2030 — with its flagship projects of export processing, superhighways and high-speed railways and ports — that would shape the evolution of the economy.
The informal economy would sink into oblivion as Kenya became a digitised middle-income country.
What the government did not realise was that the local base for the revenue dwindled with deindustrialisation.
It had to rely on heavy borrowing, which has diminished the country’s sources of finances.
But the informal economy, which thrives on strategically managed finances and low debt, has continued to thrive.
Its self-reliance inspiration ensures that entrepreneurs take calculated risks, especially in borrowing.
Their self-sacrifice, perseverance and social networks ensure its survival despite its neglect. It also becomes a home for people neglected by the government in its elitist policies.
The informal economy evolved in its own dynamics and created its own institutions to survive in the racialised and elitist economy.
Some of these institutions are difficult to dismantle — especially in places like Gikomba and Wakulima markets. So, does the government have a moral authority to tax Jua Kali?
My interaction with SMEs over the years has revealed stories of exclusion and neglect that have pushed people to Jua Kali jobs.
The stories of people who have founded SMEs are those of courage, sweat, personal sacrifice and perseverance.
They are stories of individuals who have suffered historical injustices of neglect and abuse by the same State that is taxing them. Stories of long hours of work in subhuman conditions.
The government does not have the moral authority to tax Jua Kali without dialogue and negotiation. It is the one that failed the sector in the first place.
Jua Kali could very well pay taxes — just as they do tithe and other obligations — had the government been fair and just in its policies.
Dr Kinyanjui (PhD) is an independent scholar.