LETTERS: Presumptive tax should not be treated as new

Apart from schools reopening for the 2019 first term, the other news beat that is slowly gaining momentum is the newly introduced tax for small and medium-sized enterprises, the presumptive tax. Presumptive tax talk has been rife especially in the print media.

But the manner in which some dailies have been covering the implementation of the tax is scarier than informative, right from the headlines carried to the deep-end of the stories. Fast back to the 2018/19 budget statement by the Cabinet Secretary of the National Treasury when the new tax was proposed.

The objective of presumptive tax was to bring more players in the informal sector into the tax bracket. Various studies have shown that despite the rampant growth in the informal sector, there has been very little contribution to the national kitty from the sector.

Majority of the traders in the informal sector seemed to have cheated the former regime, the turnover tax, which was self-assessment in nature, hence the dismal performance on the tax head in revenue collection.

Presumptive tax, which was implemented on January 1, 2019, is therefore not a tax on top of other taxes per se. Essentially, it has been introduced not only to replace turnover tax but also to address the various gaps that most traders took advantage of to beat the system. It is quite unfortunate that some media outlets misleadingly report that the new tax is “more pain” for small scale traders. Let’s realistically break this down.

Take for instance, a small scale trader whose annual business permit is Sh5,000. For the entire year when their permit is valid, the trader will pay Sh750, which is 15 per cent of the permit fee, to the Kenya Revenue Authority (KRA) as presumptive tax. Under the phased out regime whose rate was three per cent on the turnover, there was no way such as trader would have paid Sh750 as turn over tax for the entire year. As a matter of fact, assuming that such a trader paid turnover tax of Sh750 per year, that would have meant that their turnover for the year was only Sh25,000 which is by all means not realistic. From the above breakdown, the new tax is in favour of the small and medium-sized traders and not a pain as portrayed by some reportage. The traders will actually pay less than they would have paid under the turnover regime.

What makes presumptive tax even more favourable is that unlike other tax heads, the traders are not required to file a tax return.

Matthew Mworia, Nyeri.