William Ruto meeting small scale traders in his Karen residence. Photo Source: Twitter
While meeting small scale traders in his Karen residence earlier today, Deputy President William Ruto reiterated his desire to bridge gap between the poor and the rich. He talked about bringing development and more resources to the poor so that they can develop and move out of poverty. This will require a lot of money and today the deputy president elaborated how that would be achieved.
Money would be raised through progressive taxation as outline by Ruto. Progressive taxation in economics is when the upper class are taxed more than other social classes. This means that the rich will pay more money in terms of taxes. Progressive Taxation most deals with personal income.
Tax on your personal income is usually based on graduated scales. This in layman's language means that as you start earning more, so does your tax rate increase. For example, you might be paying Sh 10,000 when you are earning Sh 300,000. This means that you are paying a tax rate of 3.33% on your personal income. If you get a raise in salary and start earning Sh 500,000 it means at that tax rate you should pay Sh 16,500 as tax. Under progressive taxation it would not be so, your tax rate might be increased to 5% so you end up paying Sh 25000 instead of Sh 16500.
Progressive Taxation is majorly used in European countries with German being the country that has had most success in the world. Other countries are Czech Republic, Hungary and Estonia. This type of taxation continues to elicit sharp debate in most countries. President Obama met a lot of resistance from Republicans when he suggested that the rich be taxed more.
Critics of progressive taxation have in most cases quoted South Africa. South Africa has the world's most progressive taxes and coincidentally the world's highest income inequality. This has led to debates that progressive taxation can lead to widening of gap between the rich and the poor instead of bridging it. In Kenya, people of lower income will definitely rejoice hearing that they will pay lesser taxes but will the rich be happy knowing that they will be taxed more?