The Treasury plans to increase the revenue threshold for a trader to qualify as an agent for collecting value-added tax in what will be the first review in more than one and a half decades.
Under the draft Medium Term Revenue Strategy, which will run between July 2024 and June 2027, the Treasury has proposed to review upwards the current requirement for a trader to have a minimum of Sh5 million in annual sales to qualify for VAT obligations.
The strategy further proposes to harmonise the VAT rate to 18 percent in line with its peers in the seven-nation East African Community trading bloc from the current 16 percent.
“The VAT threshold has significantly been eroded over time due to inflation hence the need for review,” Treasury Secretary Njuguna Ndung’u wrote in the draft strategy.
“Having the threshold too low increases the cost of administration. The government needs to balance between the cost of collection and revenue optimisation.”
Kenya last reviewed the threshold to the current levels in 2007.
The move will spare small traders the costs of complying with VAT obligations, which include the acquisition of electronic tax register (ETR) machines.
The small-sized businesses remain the backbone of the Kenyan economy and the largest creator of new jobs in an economy where big corporates are struggling to grow workforce numbers.
“Considering that the costs of complying are disproportionately higher on small businesses compared to large businesses, reviewing upward the VAT threshold will enhance efficiency in the VAT system and relieve small taxpayers from the burden of complying with VAT,” Prof Ndung’u says.
“However, voluntary registration for smaller traders will continue to be allowed.”
The KRA started phased implementation of Internet-enabled ETRs in November last year which ensures the taxman receives sales and invoice data from registered firms and traders daily in a fresh push to boost revenue collections and curb tax evasion.