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SMEs Need Support, Not More Tax Burden

SMEs Need Support, Not More Tax Burden








In what appears to be part of its New Year’s resolutions, the Kenya Revenue Authority (KRA) is determined to ensure it no longer misses its revenue collection targets, and the introduction of a 3% turnover tax on small business on 1st January sits firmly within its agenda.

Under the new tax regime, all businesses with an annual income below Kshs 5 million are required to file in returns on their turnover tax on the 20th of each month.

They are also required to pay a 15% presumptive tax on top of the permit fees, which will be offset or deducted from the turnover tax payable.

Given the sheer size of the informal sector, which mostly comprises of small and medium sized businesses (SMEs), the new tax regime, introduced through the Finance Act 2019, is expected to boost KRA’s revenue collection.

But its introduction is not without controversy. It’s no secret that the prevailing business conditions in the country are anything but assuring. Cash flows are tight, consumption is falling, signaling a looming bare market, and NSE-listed companies have already issued profit warnings.

It goes without saying that additional taxes on small businesses will further stretch their profit margins thin. The sector is already overburdened by a myriad of challenges including inadequate capital, limited market and poor infrastructure.

While casting a wider tax net is necessary for the government to fund its budget, it’s important to ensure that support for the growth of SMEs is safeguarded. The sector is the largest contributor to the economy and the biggest creators of jobs in the country.

Moreover, how KRA will ensure that the taxes are promptly rendered without any policing is an open question. The turnover tax was previously dropped due to challenges arising from the informal sector’s limited contact with the taxation system. The question now is, has that been sorted out?

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