Even as MP’s start paying taxes, Kenya Revenue Authority[KRA] needs a Lesson in some simple economics.To help them here is a simple lesson.Suppose that every day, ten men go out for beer and the bill for all ten comes to 100 KSH…If they paid their bill the way we pay our taxes, it would go something like this.The first four men (the poorest) would pay nothing.The fifth would pay 1KSH.The sixth would pay 3KSH.The seventh would pay 7KSH.The eighth would pay 12KSH.The ninth would pay 18KSH.The tenth man (the richest) would pay 59KSH.
So, that’s what they decided to do..The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.”Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by 20KSH”. Drinks for the ten men would now cost just 80KSH.The group still wanted to pay their bill the way we pay our taxes.So the first four men were unaffected.They would still drink for free. But what about the other six men?The paying customers?
How could they divide the 20KSH windfall so that everyone would get his fair share?They realised that 20KSH divided by six is 3.33KSH. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.And so the fifth man, like the first four, now paid nothing (100% saving).The sixth now paid 2KSH instead of 3KSH (33% saving).The seventh now paid 5KSH instead of 7KSH (28% saving).The eighth now paid 9KSH instead of 12 KSH(25% saving).The ninth now paid 14KSH instead of 18KSH (22% saving).The tenth now paid 49 KSH instead of 59KSH (16% saving).Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.”I only got a dollar out of the 20KSH saving,” declared the sixth man.He pointed to the tenth man,”but he got 10KSH!””Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!” “That’s true!” shouted the seventh man. “Why should he get 10KSH back, when I got only 2KSH? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”The nine men surrounded the tenth and beat him up.The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill! And that, boys and girls, journalists and government ministers, is how our tax system works.The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.Tax them too much, attack them for being wealthy, and they just may not show up anymore.In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.We need to reduce the amount of Tax we pay particularly the amount paid by investors local and foreign,industry and other job creators
For those who understand, no explanation is needed.For those who do not understand, no explanation is possible.The Tax brackets maybe slightly off but the concept is the same
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