The untapped potential of sin tax

The untapped potential of sin tax


New years are notorious for stirring up utopian hopes and optimisms in people. It is the time that people set goals that barely last the first month of the year. It is also the time when people adopt resolutions they have been having year in year out but have never achieved anyway.

Be that as it may, new years are still favorites to many because they symbolize the start of something new, a chance to start anew on a clean slate.

Even as a country we will be looking forward to turn a new leaf on many fronts. For instance we will be hoping, among other things, that the divisions that came with last year’s election remain a thing of the past. However, some things can’t be wished away with the turn of a new year. One such thing is debt.

A back-of-the-envelope calculation puts the amount owed by every Kenyan as a result of debt at approximately Sh97, 000. Year in year out we are running a deficit budget which we fund trough borrowing. As if to add insult to the injury, last month it came to the fore that the government had taken a loan (one of the most expensive loans taken in recent times for that matter) to pay another loan.

The reason for this is simple and straightforward: we are not collecting enough revenues to fund our expenditures. If raising revenues is our main problem then the solution lies in finding better ways to collect more in taxes, and this is exactly where the topic the of sin tax comes into the picture.

Sin Tax

By definition, sin tax is the excise levied on products or activities, which are deemed to be harmful. Sin tax exists mainly for two reasons. The first and major one is to curb bad behavior. The second and more obvious reason is to raise revenue. Sin taxes are fashionable to governments because they fall on unpopular behaviors and activities thus making them politically convenient. Our government knows this all too well. It has been faithfully slapping the liquor and tobacco industries with hefty tax rates over the years. Last year the trend continued; the treasury doubled the excise stamp fees for cigarettes, wines and spirits to Sh2.80 while at the same time increasing tax on alcoholic spirits by 14% to a rate of Sh200 per liter up from Sh175.

But then alcohol and cigarettes alone cannot sustain a decent stream of revenue in form of sin tax. There needs to be more participants in the “sin tax industry” to be minted from. While there are many products and activities that can add to the sum of activities from which sin tax is drawn, my opinion is that marijuana and prostitution are the most attainable options right now.

Of the two, marijuana is the most promising because it has been tried and tested in other parts of the world and the results have been nothing short of impressive. Colorado State in the United States of America is a good testament of the economic miracles that could come with the legalization of marijuana.

In January 2014 marijuana became legal in Colorado. From then onwards, it has been a story of success and prosperity. In 2015 the legal marijuana industry created over 18, 000 new jobs besides generating $2.4 billion in economic activity. In 2016 marijuana sales alone blew past the $ 1 billion mark by the 10th month of the year (October). Consequently, the local government raked in a cool $ 193 million in tax revenue. In 2017, half way into the year sales stood at $750 million, and by the 8th month (August) hitting the $ 1 billion mark was already a thing of the past.

The trend is clear, and it is easy to guess what next for the marijuana industry. But we don’t have to guess because research has been done on the same and conclusions reached. In 2015 a consultancy firm called the Marijuana Policy Group established that marijuana rakes in tax revenue at three times the rate of the alcohol industry. The consultancy group also predicted that by the year 2020 taxes from marijuana will overtake those from the tobacco/cigarettes industry

Colorado has a population of 5.5 million and it was able to net almost $ 67 million in its first year of legalization of marijuana. Putting all reason and logic aside and sticking with mathematics for a moment, Kenya with a population of 48.46 million should do at least $ 600 million. These figures couldn’t be further from reality but there is little that can be done about them since they are numbers and not like opinion, which can be contested. Perhaps the perfect solution will be to take the idea that legalizing taxing marijuana will be of enormous economic benefits and ignore the numbers. Alternatively, we can choose to put up with the numbers but with a dose of imagination and fantasy.

Getting back to the reality, it is the perfect time to talk about prostitution because such a topic needs to be approached with a lot of sobriety and tact. Very few issues spark a heated debate as the issue of prostitution.  Proponents of legalization, including Amnesty International and the United Nations, hold that legalization would protect its participants and go a long way in reducing HIV infections than when the practice happens in the shadows. On the other hand, antagonists of legalization maintain prostitution is the epitome of human abuse and exploitation.

In my opinion, both sides of the argument are correct in their own right since they are backed by facts from research on the same. Talking about facts, it is also an undisputable fact that prostitution is the world’s oldest profession. What this means is that prostitution has stood the test of time and hence, like it or not, it is going nowhere anytime soon. Our government taxes almost all professions, why can’t it turn to the world’s oldest profession for a boost in revenues? The industry exists; it is just a matter of recognizing and streamlining it then taxing it. For our case as a country, I believe it is as easy as equipping county askaris along Koinange Street with receipt books instead of rungus.

Grand as these ideas are (or may sound) they face a serious threat if the moral card is played: That these proposals go against good taste, ethics and values many Kenyans subscribe to.

But hey, like it or not, these things are happening. The youth are using marijuana in magnitudes. Legalizing it will just eliminate the black market and cartels. Also, it helps to be hardnosed when running a country. If we have a revenue problem and the solution lies in a not-so-pleasant avenues we should go for it, or have we forgotten the good old idiom which says that where there is muck there is brass? On the issue of morals and values, the last time I checked Kenya was still a secular country.  In any case what doth a country stand to gain if it walks the tight rope of morality while it is drowning in debt?  ^

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