The taxman has asked millions of small traders to immediately pay a newly introduced tax that kicks in from January or risk not getting their business permits renewed.
The Kenya Revenue Authority (KRA) yesterday said the informal traders will be required to log onto its iTax platform and pay the presumptive tax before county governments can renew their business permits — now tied to payment of the tax — for next year.
“…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 the KRA in a notice published in the local dailies.
“Persons acquiring or renewing business permit or licence at the county shall pay this tax at the rate of 15 per cent 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.”
This means millions of small businesses which will not have met the deadline will not have their single business permits or trading licences renewed in January.
Treasury secretary Henry Rotich mid this year changed the law to have informal traders recording revenue of below Sh5 million pay the presumptive tax at the rate of 15 per cent of the single business permit fee issued by a county government when renewing their permits.
This was after the previous turnover tax 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.
It is also expected to provide the KRA, under pressure to collect additional revenue, with additional data on small traders, the majority of whom have not been paying taxes.
The informal or Jua Kali sector, as it is popularly known, is seen to have limited contact with the tax system save for indirect consumption levies and President Uhuru Kenyatta’s administration is banking on the new tax to plug revenue loopholes.
Mr Kenyatta last September signed into law the Finance Bill 2018, which introduced a number of new taxes and levies aimed at growing the revenue base and reducing the budget deficit as demanded by the International Monetary Fund.
“The presumptive tax is to basically widen the net,” said Nikhil Hira, a tax expert and director at law firm Bowman’s Kenya.
Mbiki Kamanjiri, a tax manager at Grant Thornton, said “the surest way to ensure traders pay the presumptive tax is to have it as a prerequisite for renewal of the business permit”.
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 revenued stood at Sh320.311 billion against the Sh380.76 billion target, official statistics show. The KRA has kicked off a series of sensitisation campaigns on the new tax.
Beginning this week and mid-December, the taxman has scheduled such campaigns in 19 locations, including Nairobi, Naivasha, Voi, Bungoma, Kisumu, Eldoret and Nakuru.
Tough business climate
About 2.2 million small enterprises have closed shop in the past five years, according to a 2016 government report, underlining the tough challenges that the local business climate poses for small traders.
The Kenya National Bureau of Statistics (KNBS) report titled Micro, Small and Medium Establishments, says most of the businesses that shut down had blamed shortage of operating funds, increased operating expenses, and declining income for the collapse.
“The tax does not apply to persons engaged in management or professional services, rental businesses and incorporated companies,” said the KRA.
KRA commissioner-general John Njiraini had earlier said the agency is turning to use of technology to bring more Kenyans on board and expand the tax base.
The KRA hopes to net an additional 500,000 taxpayers from whom it expects to collect approximately Sh60 billion in the current year, Mr Njiraini said.