Economy

KRA eyes Sh2bn tax from traders

kra

KRA commissioner-general John Njiraini. The Kenya Revenue Authority (KRA) is targeting an additional Sh2 billion annually from small traders following the start of enforcement of a new tax. FILE PHOTO | NMG

The Kenya Revenue Authority (KRA) is targeting an additional Sh2 billion annually from small traders following the start of enforcement of a new tax.

The KRA says it has launched talks with county administrations to help it in the enforcement of the tax that targets small and medium enterprises (SMEs) making annual revenue of below Sh5 million.

Informal traders falling in the threshold are supposed to pay a presumptive tax at the rate of 15 percent of the single business permit fee issued by a county government when renewing their permits effective this month.

“KRA targets to collect Sh2 billion by the end of the current financial year,” said KRA commissioner for strategy, innovation and risk management Mohamed Omar in response to queries from the Business Daily.

Enforcement of the tax appears to be off to a slow start going by responses from traders interviewed at their business premises.

Some county officials and traders said there was low awareness from the KRA about the new tax.

“We are still waiting for direction from the KRA,” said a small trader based in Nairobi’s River Road who sought anonymity.

Talks with counties

But KRA said it has launched talks with county governments on the successful roll out of the new tax.

“Consultations with the county governments are still ongoing. The permits are not issued all at once, but throughout the year. Non-compliance issues will be addressed through the normal enforcement programmes that KRA has put in place,” said Mr Omar.

Machakos Governor Alfred Mutua said his administration is in touch with the taxman on enforcement of the new tax.

“KRA consulted us in Machakos and even sent a team to brief us whereby we set up a working group to roll out the new presumptive tax,” Mr Mutua said in interview.

“All is well and we are carrying out this new system.” He, however, did not provide details on the number of permits the county had issued under the regime.

Experts said the fiscal impact of the new collections will be huge for KRA, but warned of implementation challenges ahead.

“…this (new tax) will help KRA plug the gap in collection target,” said Mbiki Kamanjiri, a tax manager at Grant Thornton.

“The main issue would be in proving that the gross turnover for the year will not exceed the Sh5 million threshold. Further most of these businesses would not be keeping proper records of their financial performance.”

The KRA had earlier said that the informal traders would be required to log onto its iTax platform and pay the presumptive tax before county governments can renew their business permits.

“…In accordance with Finance Act, 2018, the presumptive tax shall become payable from January 1, 2019. All eligible taxpayers are advised to pay for the presumptive tax at the time of payment for business permit fee or trade licence,” said KRA in a notice published in the local dailies late last year.

“Persons acquiring or renewing business permit or licence at the county shall pay this tax at the rate of 15 percent of the business permit fee or licence payable… The taxpayers shall be required to generate a payment registration number on iTax after which they can pay through M-Pesa Pay Bill number 572572 or any other partner bank.”

Revenue targets

The KRA, which has perennially failed to meet its annual revenue targets, was Sh60.46 billion behind target in the three months ended September following a slowdown of economic activity and delayed implementation of some new tax measures.

The tax revenues stood at Sh320.311 billion against the Sh380.76 billion target, official statistics show.

The previous turnover tax targeting small traders flopped as most traders failed to make revenue disclosures.

The new tax is expected to saddle small traders, who have raised concerns about deteriorating business conditions, with additional operating costs.