Presumptive tax on the informal sector welcome

The Times Tower
The Times Tower. FILE PHOTO | NMG 

The informal sector has been commanding a substantial share of the gross domestic product in most developing countries including Kenya. Compared to the formal sector, the informal sector has also been enabling more people to put food on the table than the former.

According to recent studies, the informal sector has been growing exponentially over the years as more and more people venture in to the sector. More interestingly, even most people in the formal sector have been investing in the informal sector as a means of getting an additional source of livelihood.

Despite this remarkable growth, the informal sector has been a hard nut to crack for many tax administrations owing largely to lack of defined structures. While acknowledging that the sector is a high revenue generator, most governments have been grappling with the apt framework of putting informal sector players within the tax bracket.

In 2008, Kenya introduced a three per cent turnover tax targeting small and medium enterprises with a less than Sh5 million annual turnover. Turn over tax has been payable and accounted for quarterly by the concerned sector players. TOT was meant to simplify the taxation process for the target sector.

Almost 10 years down the line, the tax head has not been performing according to expectations of the brainchild behind the tax, a pointer that its introduction and subsequent implementation was still not the badly needed framework to streamline taxation of the sector. This means that the government has still been losing colossal amounts of revenue to this self-declaration tax framework.

Nonetheless, all seems not to be lost in Caesar’s pursuit of what rightfully belongs to him following a brilliant proposal in the 2018/19 budget statement to introduce a presumptive tax which shall replace TOT.

The implementation of the proposed tax which will be charged at a low rate of 15 per cent on the business permit or trading fees is slated to kick off on January 1, 2019. If accorded the requisite support by all the concerned parties, the 15 per cent presumptive tax will bring on board more players within the tax bracket.

Eventually, there will be more in the national revenue kitty as the Kenya Revenue Authority (KRA) will be in a better position to collect more. That way, the country’s development agenda dream as articulated in the Big Four Agenda will receive a major boost.

Daniel Muema, Kitui