State dumps turnover tax plan for small businesses

Informal traders licensed by county governments will next year start paying a presumptive tax of 15 per cent based on their single business permit fee.

This comes after the government proposed to do away with the turnover tax owing to non-compliance by the largely informal sector that has proved hard to police.

“The informal sector in our country is expansive and remains out of the tax net. The Finance Act, 2006 introduced taxation of the sector through a turnover tax. However, this system of taxation has largely been unsuccessful and the levels of compliance have remained low due to the profile of the sector,” Treasury Cabinet Secretary Henry Rotich said.

The move ushers in a new strategy on collection of taxes where the small enterprises will be required to bank upfront the 15 per cent levy to government tax account before renewing single business permits or trading licences from their respective county governments.

The strategy also ropes in county enforcement units in the campaign to raise money for the national kitty where individual SMEs will now have to seek official registration to facilitate payment of taxes.

Mr Rotich’s order stretches the tax net down to the lowest informal traders that require county licences to operate low capital businesses.

The measure is likely to raise billions of shillings in collections as opposed to the previous failed system.