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Covid-19: Micro lender calls on state to relax tax for MSMEs

By Fredrick Obura | April 17th 2021

Microlenders are calling on the government to relook the country’s taxation regime to aid Micro and Small Medium Enterprises weather the effects of the Covid-19 Pandemic.

Chief executive of Microlending firm, Jijenge Credit Peter Macharia is urging relevant authorities including the National Treasury and the Central Bank of Kenya to re-look at the country’s taxation structure to rescue the sector.
“The tax regime is currently not favourable more so for the micro small and medium enterprises (MSMEs) owing to the effect of Covid-19,” said Macharia in an interview.

At the beginning of the year, KRA informed the public on changes of tax rates introduced through the Tax Laws (Amendment) Act of 2020 which was published last year on December 24 particularly on Corporation Tax, and Legal Notice No. 206 of 2020 on Value Added Tax.

The new tax rates replaced those introduced in April 2020 to cushion the struggling businesses most of which were hit by the pandemic and are yet to recover from its effects.

KRA had last year reduced the rate of VAT from 16 per cent to 14 per cent which affected the VAT returns that were to be submitted after April 2020. It reversed that decision in January 2021 – a decision that continues to hurt most SMEs because the effects of the Pandemic are still being felt.

Since April last year, the adverse effects of the pandemic have compelled many businesses to change tack, upon realising that finances are just one of the many aspects that make a business healthy and thriving.

While funding for SMEs remained critical after the coronavirus restrictions were eased, Mr Macharia says that their significance has now lessened due to the high tax demands by the KRA – arguing that it could push many SMEs out of business.

MSMEs continue to face difficulty in accessing affordable finance from banks owing to the apparent high-risk perception at play, asymmetric information, and micro and small enterprises’ lack of collateral.

The Public Finance Management Regulations last year set up a Sh3 billion stabilisation facility to enable the participating banks namely; Absa, Co-op, Credit Bank, DTB, KCB, NCBA and Stanbic to extend credit to MSMEs that meet the requirements, including compliance with tax obligations and business permits and having a good credit standing.

The hardest-hit sectors, mainly manufacturing, trade, real estate, agriculture, education and transportation, even after the easing of restrictions by the Government, are still reeling from the impact of the pandemic.

In October last year, Jijenge Credit received approval for the rollout of a digital interface check-off system targeting government employees for loan offers against their payslips. Initially, the company had targeted to loan out up to Sh200 million to the government employees drawn from various ministries and Parastatals in the first six months.

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