Small traders should be spared painful tax

SMEs require support in acquiring linkages to large enterprises for sub-contracting work. FILE PHOTO | NMG 

If you run a kiosk, grocery shop or a barbershop, prepare to start remitting three percent of your monthly sales to the taxman. The Kenya Revenue Authority(KRA) has announced the implementation of a three percent turnover tax on small businesses.

This unpopular tax reflects the mindset of today’s taxman in many ways. We have a regime where the taxman approaches the job on the basis that taxes must be collected at all costs, regardless of likely impact on the macro economy. You must astutely compare impact on effort and on entrepreneurship of the taxes you are introducing on the SMEs, with value of what you collect to the Exchequer.

In a sense, the introduction of the turnover tax on SMEs is an anti-climax. Recently, the impressions created by policy statements and speeches by government officials was that the government is serious about supporting growth of the SMEs sector.

The introduction of the tax is clearly a step in the wrong direction. This unpopular tax must be rejected as flawed and inconsistent with the government’s long term policy of fostering a vibrant SMEs sector. I recently read somewhere that in Zambia, the government has become so hungry for money to the extent that the taxman there has resorted to introducing all manner of taxes on boreholes, internet calls, and weather reports.

Here, the government introduced taxes on essentials, including VAT on petroleum products and agro-chemicals, excise duty on mobile money transfers and bank charges and duty on inter-bank transfers in 2018.


These taxes have all been imposed in the name of modern taxes and reduction of reliance on traditional taxes.

Today, KRA will demand a pound of flesh from you and trap you as you are withdrawing money from the ATM, nail you when you make an over- the- counter withdrawal at your bank, grab money from you as you make an urgent call to your parents in the village.

KRA will raid your pocket as you browse at an internet café, nail you as you are watching your favourite football club in your living room on SuperSport, GOtv or as you upload data through Safaricom data services.

In reality, most small traders don’t issue receipts.

When was the last time the small trader who runs and owns the store in your neighbourhood issued you with a receipt after you bought bread and milk in the morning?. Nairobi has a very vibrant hawkers vegetable market located on Haile Selassie Avenue by the name which turns over billions of shillings every day. Do they issue receipts?. Not at all. Yet the taxman has come up with ways of trapping all small traders with a turnover of less that Sh5 million in a year into the tax dragnet.

As you prepare to collect your business licence from the county government, you will be expected to pay an extra 15 percent of the permit fees to KRA as a presumptive tax. It displays a mindset that holds the view that the State has the first claim to everyone’s income. That is what you get after your income has been taxed as a giveaway by government to undeserving and ungrateful citizens. SMEs should not be subjected to these maddening taxes. What the sector needs is support on how to develop linkages with markets and how to acquire labour and raw materials at competitive prices.

SMEs require support in acquiring linkages to large enterprises for sub-contracting work. They need to be supported and facilitated to plug into global value chains.

What the sector needs is a working credit guarantee system where resources and finances committed by the government are leveraged and used to unlock even more money from the banking system.

Instead of taxes, what we should be focusing on is how to implement the proposal to establish a single consolidated SME agency by the name, Biashara Bank.