Turnover tax should not flop as it did in the years 2007 to 2018. FILE PHOTO | NMG
Taxation is not just about revenue, it’s an unparalleled instrument of the State for steering the economy. Let me draw a parallel between the pre-colonial economic system and our current system.
The Kenyan economic system is largely informal. The informal sector is a thriving one given the number of employment opportunities the sector commands. The volume of transactions is equally monumental. However, it has been difficult to document the true worth of this sector; even the traders themselves might not be able to tell exactly what they own or owe.
In the light of this, external financing to this sector is almost impossible due to the unorthodox models of operations adopted here. Resources and extension services may not be availed to desired levels because the needed information may be lacking. The benefits of pooling capital and the resultant economies of scale effect cannot be enjoyed in this world of every man for himself.
Succession is the greatest nightmare because most of the outfits are unregistered with their operations undocumented. Given the nature of the informal sector as described above, attempts to tax the proceeds from this sector have been a wild-goose chase for the government.
Micro, small and medium enterprises or the hustlers nation as they call it, is a blessing to our generation that needs to be nurtured to the next level. The first step is formalising the informal sector. Introduction of a tax that ensures that the sector also contributes in the national revenue kitty is an important formalisation facet.
The recently reintroduced turnover tax may turn out to be a blessing in disguise. Turnover tax coupled with presumptive tax, which is charged at the rate of 15 percent on annual single business or licence fee, has been criticised as punitive to struggling enterprises. Should we let proponents of this idea discourage us? Not again.
Turnover tax should not flop as it did in the years 2007 to 2018. First, I opine that some of the enterprises are not as small as one would like to imagine. It is a multibillion-shilling sector that has created filthy rich barons who have been operating their enterprises tax-free. However, that’s a topic for another day.
Now to the big picture. The imposition of turnover tax if rightly implemented will make a demand on the informal businesses to reorganise their affairs. A systematic way of determining the gross turnover has to be devised. A well regimented system of accounting may be too much to ask of them but an innovative idea is long overdue.
Probably we should enforce a strict system of receipting and capturing of transactions such as the Electronic Tax Register (ETR) used in the Value Added Tax (VAT) regime.
A much simplified fashion but along that line of thought is a prophecy that must come to pass. The idea is, as the government collects the three percent tax, a lot of information will be generated and left at the disposal of the traders. That way, revenue leakages may be sealed by a well-functioning sales recording system.
As a result, substantial and valuable data will be gathered in the process for the benefit of all stakeholders.
The writer is lecturer at KCA University.
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