Photo: Dr David Ndii a re-known economist who has taken time to educate masses on social media platforms.
By Nyamwange Ombuna via FB
POVERTY TAXATION
If you are qualified for a bank overdraft worth 100k with 1.5% rate/month, then you pay 1500 for that credit facility. If you are not qualified for overdraft but opt to borrow from a Shylock at 15% rate/month, then you are paying 15,000 for same loan product.
In economics, the difference (15,000 – 1,500) = 13,500 is called the POVERTY TAX or GHETTO TAX. This is the amount of money you pay in excess to afford services your economic status cannot allow you to afford cheaply. You should all be knowing bank overdrafts are available to people often doing well financially.
The POVERTY TAX is one ignored yet a big concern for escalating the income gap. There are also huge gaps in studying poverty tax in developing nations, and analysis of policy from past finance ministers in Kenya indicate that not even a single one has issued a policy directive to minimize the poverty tax.
For purposes of slow learners who can’t think beyond the example I gave above, let me expound more on poverty tax and its impact on the poorest. In home cooking, a 13 kg LPG gas cylinder can give you around 300 megajoules of energy at 50% efficiency. A slum dweller who cannot afford that will use kerosene, whose best efficiency is around 30%, and thus will need around 30 litres to get the 300 megajoules.
Under current market rates, a 13 kg gas will cost around 1800, and with a litre of kerosene at 90, 30kg will cost around 2700. That means a poor slum dweller will pay (2700-1800)=900 extra to receive same service as some well doing person. Firewood and charcoal are even worse. At best when using more modern jikos (see attached image), households can achieve up to 30% efficiency but will still need in excess of 60 kg worth of firewood for same amount of energy a 13kg cylinder will give (village households manage this because firewood is cheap, often obtained for free).
In service industry, a person on Safaricom postpaid will pay 1000 one off for 400 minutes and 5GB worth of bundles. For low income earners who can’t afford 1000 one off and settle for bamba 50 daily, assuming they also need same resources, 400 minutes will cost them 1600 a month, 5GB purchased as 75MB for 20 bob daily will cost 800 bob. So a low income persob will pay 2400 per month to obtain resources a postpaid person paid 1000 to acquire, again a poverty tax of 1400.
When at the end of the month you sit down to calculate the extra cost a person has paid for being poor, you’d be very surprised they are spending more to eat, more to travel, more to communicate, more to seek medical services, simply more to survive. While some middle class who overrate themselves may think they are free from these, they arent. They form the bulk of people seeking money from digital pawnshops. Their preference for Uber due to dilapidated public transport costs them a leg.
There are so many options the CS for Finance can take to relieve people these poverty related costs. For instance, slapping a 16% tax on LPG gas was on bad faith especially to low income earners. Extending leniency to digital lenders does a lot of injustice to millions of low income earners. Strict laws on digital lenders are necessary.
In employment sphere, an employer paying less than 50k shouldn’t pay at the end of the month, the money should be paid biweekly to improve liquidity in people, helping them avoid interest bearing loans to cater for basics while waiting for end month. In service sector, a keen eye on firms’ market behavior should be maintained to prevent abuse of people at the bottom, who most of the time have no bargaining power over anything.
All those can be done at policy level, and may not need legislation. Enforcement is however key to ensure adherence
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