Traders operating small and mid-sized businesses will from January 1st, 2020 start paying a three percent tax on their sales to the Kenya Revenue Authority (KRA) following the re-introduction of the levy, which looks set to hurt enterprises struggling with low revenues.
The Finance Act 2019, which President Uhuru Kenyatta signed into law on November 7, reintroduced the turnover tax for businesses whose annual sales are below Sh5 million to boost tax collections.
The new tax takes effect today and is expected to saddle small traders, who have raised concerns about deteriorating business conditions, with additional operating costs.
It is also expected to provide the KRA, under pressure to collect additional revenue, with a fresh avenue for raising taxes from small traders, the majority of whom have not been paying State levies.
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The Treasury had in 2018 dropped the turnover tax due to its poor performance as most traders failed to make revenue disclosures.
It replaced the sales levy with a presumptive tax at the rate of 15 percent of the single business permit fee issued by county governments when renewing their permits.
The tax allowed KRA to gather additional data on small traders, setting the stage for the return of the turnover tax.
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The informal sector, popularly known as Jua Kali, is deemed to have limited contact with the taxation system save for indirect consumption levies and Mr Kenyatta’s administration is banking on the turnover and presumptive taxes to plug the revenue loopholes.
KRA says the presumptive tax will remain an advance tax that will be deducted against the turnover tax.
Maurice Oray, the deputy commissioner for corporate policy at KRA, defended the decision to retain the presumptive tax alongside the turnover tax.
He argued that the presumptive tax would be key in collecting data on small traders who largely operate informally for the purposes of enforcing the three percent-monthly turnover tax.
“The key thing is to recruit as many taxpayers as possible within that bracket, which has remained largely untaxed,” Mr Oray had said earlier.
KRA’s analysis ahead of introduction of presumptive tax in 2018 indicated that some 1.56 million taxpayers with single business permits had not registered under the turnover tax regime.
The micro- and small-sized businesses remain the backbone of the Kenyan economy and the largest contributor of new jobs despite largely operating in informal settings
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world