This e-paper was published in the Business Daily Africa
As Kenya’s budgeting cycle reaches its peak, this is the moment to rethink the choice of fiscal instruments. Every tax break is a form of silent expenditure—a leakage that happens before revenue is even booked.
In 1902, French colonial officials in Hanoi, Vietnam, launched a clever-sounding plan to fight a rat infestation: they offered a bounty for every rat tail turned in.
At first, the results looked promising—thousands of tails were delivered. But then, the authorities noticed something odd: rats were still scurrying through the sewers—without tails.
It turned out people were cutting off rat tails and releasing the rats, allowing them to survive and reproduce. Others began breeding rats just to claim the bounty.
What began as a sanitation measure quickly became a perverse incentive scheme that increased the rat population instead of reducing it.
This episode, now immortalised as the “Hanoi rat bounty fiasco,” remains one of history’s clearest examples of well-intended incentives gone spectacularly wrong. But it’s not just history. The same logic failure has quietly played out in Kenya in recent years—this time, not with rats, but with alcohol.
Governments routinely use tax incentives to support specific groups—whether to boost morale, promote welfare, or ease service delivery. These incentives, while well-meaning, result in what economists call tax expenditures—a form of public spending that occurs before revenue is even collected. Though common, tax expenditures can carry far-reaching effects, especially when applied to high-value and high-tax goods.
Kenya has quietly experienced this. A policy to supply reduced-cost alcohol to closed institutional groups—likely well-intended—produced unintended market spillovers.
Read the full article HERE