Exempt start-ups from a chain of painful taxes

A young Kenyan entrepreneur recently went on Facebook to vent, and rightly so, about how hard it is to make an honest living especially as a startup.

Faith Mutembei, the founder of Mountain Brooke brand of water, tearily narrated how taxes broke her water venture in infancy.

Ms Mutembei narrated how her startup had to pay onerous charges to the Kenya Revenue Authority (KRA), Kenya Bureau of Standards, and county levies.

While Kenyans should appreciate that the government has a duty to ensure that some sensitive products such as foodstuffs are processed using high standards, the worry is the burden companies carry.

Ms Mutembei’s case is anecdotal evidence that Kenya’s status as a melting pot for entrepreneurial excellence is in jeopardy.

But where did we go wrong?

One possible answer may come from James McFie of Strathmore University who has often said that our tax policies often focus on milking businesses as much as possible with little thought goes to whether sustainability.

An example is the decision to tax Keg a few years ago after their ill-conceived policy not only failed to collect the taxes that were targeted but also resulted in the closure of 6,000 Keg joints.

Kenya’s tax policymakers do not appreciate that you should fatten the cow before you milk it and these same officials seem to want to repeat the same overtaxation strategy and expecting different results.

This time round the Treasury is hellbent on introducing mandatory turnover tax and Digital Services Tax.

Both will make it harder for start-ups and other fledgling ventures, especially those that have adopted digital strategies to stay afloat.

Such policies also show that there is an invincible Chinese Wall within various departments in the Government or simply put bureaucrats in one department of government are oblivious about what their counterparts are doing on the other side.

For instance, Kenya’s Digital Blueprint has cited that digital platforms are vital for agriculture as they bring farmers closer to the traders by reducing the number of middlemen between the farm and the plate.

Introducing the DST would inevitably result in the KRA becoming the same middleman that the Government wants to eliminate via digitisation.

It still beggars belief that our policymakers are confident that these new taxes will yield the targeted revenue.

Kenya’s history is replete with examples of companies that were once small but are now behemoths employing thousands, driving the economy, and generously contributing to Government coffers but operated in a tax conducive environment.

Imagine if a start-up such as Twiga Foods, which recently raised $29.4 million from the International Finance Corporation, was slapped with minimum turnover tax and DST in the beginning, would it be thriving?

We may never know but the point is that the Government should spare small companies from onerous taxes and allow them to thrive. Once we fatten these calves, we can then comfortably milk the cow once it matures.