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It means that small business have to maintain a margin of more than three per cent if they are to keep up with the new tax.

The Kenya Revenue Authority (KRA) could get a Sh17 billion monthly windfall from small businesses following the re-introduction of turnover tax.

A survey done in 2016 on small businesses that make gross sales of Sh5 million and below estimated the total turnover for such establishments at Sh635 billion, with a big chunk of this being made by licensed enterprises.

From these figures, in a year, the taxman could easily net Sh228 billion.

Susan Gesare, a vegetable trader, chops cabbage at Kisii municipal market, Kisii town. She is running short of green vegetables with vendors forced to source them from the neighbouring Narok County. [Sammy Omingo/Standard]

KRA is expected to levy a turnover tax of three per cent on a business’ gross monthly sales. The tax will start being applied this month, and targets about 2.4 million businesses. 

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There are currently about seven million registered taxpayers. However, just around 3.6 million filed their 2018 tax returns as the filing period officially closed on June 30 last year.

If the taxman goes after licensed businesses alone, it would collect Sh17 billion, which is three per cent of the Sh596 billion that the Kenya National Bureau of Statistics (KNBS) estimated registered businesses make in a month.

“KRA and the government at large will continue exploring more avenues of simplifying tax administration in the informal sector until the sector’s full potential is felt in the national revenue coffers,” said KRA Commissioner for Domestic Taxes Elizabeth Meyo. 

“KRA therefore calls on all sector players to take this patriotic duty positively for a better Kenya.”

Faced challenges

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However, implementation of the turnover tax has faced challenges since it was introduced in 2007.

The government has struggled to implement the tax, replacing it with a different one - presumptive tax - in the 2018-19 financial year.

Samuel Mwaura, a tax expert at audit firm Grant Thornton, said except changing the levying period from quarterly to monthly, not much has been changed to warrant confidence that this time round the turnover tax will succeed.

One of the challenges with the tax is that it does not take into consideration if a business makes a loss or not.

“It seems like KRA has decided that you cannot be in business for long if you are making losses,” said Mr Mwaura.

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It means that small business have to maintain a margin of more than three per cent if they are to keep up with the new tax.

Presumptive tax – where businesses were supposed to pay 15 per cent of their licence fees through counties – was seen to be slightly cheaper.

However, it ran into headwinds after KRA failed to agree with the counties on how to implement it.  

In total, about 50,000 micro, small and medium enterprises (MSMEs) were sampled in the KNBS survey, targeting licensed businesses.

KNBS also sampled another 14,000 households looking to capture home-based enterprises, which are largely unlicensed.

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The survey established that there were about 1.56 million licensed MSMEs, and 5.85 million unlicensed ones.

Kenya Revenue Authority KRA Tax

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