Taxes from SME sector increase with new policies

The small and medium enterprise sector is growing fast and it is now being seen as the force behind the increasing number of new tax payers, a move that has helped grow government revenue.

According to the tax collector—the Kenya Revenue Authority (KRA)— the country has recorded an additional 409,000 taxpayers since January when cyber cafes were roped into the online registration of taxpayers across the country.

“Given their expansive network covering the entire country, they can be an effective vehicle through which taxpayers countrywide can access our online services,” says Mr Kennedy Onyonyi, the senior deputy commissioner in charge of marketing and communication department.

Another factor that has contributed to the increase in government revenue generated from the SME sector is the introduction of turnover tax in January 2008.

The tax which targets small and medium businesses with annual turnover of between Sh500,000 and Sh5 million is an indirect tax chargeable at the rate of three per cent of a business’ total sales.

With the growth in the number of medium and small enterprises in manufacturing, retail trade, car repair and education over the past years, more revenue has been generated.

Businesses targeted by turnover tax include family-owned businesses, partnerships and limited companies.

The turnover tax has been responsible for about Sh1 billion into Treasury coffers.

Turnover tax is intended at bringing in the informal sector into the tax bracket.

These include small-scale manufacturing firms, Jua Kali, agricultural, transport and light manufacturing industries.

According to the Ministry of Trade, Kenya has about 1.6 million registered small and medium enterprises constituting about 96 per cent of all business enterprises in the country.

The small businesses employ about 5.1 million people accounting for 75 per cent of the total labour force and contribute 20 per cent to Kenya’s gross domestic product.

These are the numbers that KRA are relying on to increase tax contributions.

The increasing number of SMEs offer new tax sources while the number of increasing workers also offer new taxpayers to KRA which targets to collect a total Sh545.2 billion for the 2009/2010 financial year up from Sh480.6 billion in the 2008/2009 fiscal year

The robust returns by the revenue authority in its October-December 2009 quarter has put the taxman in the first lane to help Treasury meet its revenue target of Sh635.5 billion for 2010/2011 which looked a distant dream following a period of dismal revenue collections in 2009/2010 financial period.