Minimum tax to level ground, tame the cheats

With the newly introduced minimum tax raises, businesses will be charged tax on gross receipts at a marginal rate of one per cent. 

Businesses are normally taxed on their profits. That option still exists, provided the tax on profits is more than that on gross receipts. Taxing businesses on profits has always left loss-making entities off the hook. But bear in mind that the onus of determining profits or losses rests on the taxpayer.

The opponents argue that the new taxes will ruin loss-making entities. There are three types of loss-making entities to address here. In the first category are businesses reporting losses but are flourishing by any other standard. How do they survive successive periods of loss-making? They know, we know, the taxman seems to have known, they are the targets of this new tax.

The second is businesses in capital-intensive sectors and volatile environments like mining. The drafters of the law exempted the extractives industry. Tanzania exempts agriculture. 

Loss-making businesses

The third category is genuinely loss-making businesses. Some enterprise owners hang on to loss-making venture.

Konosuke Matsushita, the Japanese philosopher who founded Panasonic Electronics, remarked: “If we cannot make a profit, that means we are committing a sort of crime against society. We take society’s capital, we take their people, we take their materials, yet without a good profit, we are using precious resources that could be better used elsewhere.”

Minimum tax can initiate that debate especially with rural dwellers masquerading as farmers.

Another perspective to minimum tax is the reintroduction of turnover tax, in which businesses with annual turnover of less than Sh50 million fall. Minimum tax is for entities above that. 

Charging both categories at one per cent addresses fundamental issues in taxation: Fairness and closing loopholes for tax evasion.

Mr Mwinzi is a lecturer at KCA University. [email protected]