What you need to know:
- Turnover Tax was first introduced in the Kenyan taxation framework in 2007 with a view to enhancing tax compliance in the informal sector.
- KRA says the government 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.
If you run a kiosk, a grocery store, salon or any other small business, prepare to start paying taxes.
For every Sh1,000 you generate in daily sales, irrespective of whether you are selling at a profit or loss, you’ll be keeping aside Sh30 to give to the Kenya Revenue Authority (KRA) at the end of the month.
This is after KRA moved to implement the controversial three per cent Turnover Tax (TOT) targeting 2.5 million businesses in the informal sector. The new tax takes effect from January 1, 2020.
A turnover tax is charged on total sales and does not factor in other costs associated with running the business.
It is one of the easiest taxes for any authority to levy, given that only one calculation is required to know how much tax one must pay.
Small businesses will also be required to keep records necessary for the determination and ascertainment of the turnover tax when KRA comes calling.
That is not all. As you prepare to get your business licence from your county government, you will be expected to pay an extra 15 per cent of the permit fees to KRA as presumptive tax.
This means that if your annual business licence fee is Sh10,000, then you should be prepared to top this up by Sh1,500 for the taxman.
Kenyans are up in arms after the taxman put up a notice on Friday asking businessmen to take the action as a ''patriotic duty'' as it puts to life the tax measures in the Finance Act 2019.
“The tax rate for TOT is three per cent on the gross sales and is a final tax. TOT will be filed and paid on a monthly basis,” said KRA commissioner for domestic taxes department Elizabeth Meyo.
Businesses are required to pay the taxes on or before 20th of the following month. For instance, the first such tax will be due on February 20.
“KRA, therefore, calls on all sector players to take this patriotic duty for a better Kenya,” Ms Meyo said.
What this means is that if you run a salon, butchery, grocery store and so on, you will be required to declare your sales online and pay the taxes at the end of each month.
However, the presumptive tax will be offset or deducted from the turnover tax payable.
Ms Meyo said the turnover tax would only apply to persons with business income of less than Sh5 million per year.
It will, however, not be applicable to persons registered for VAT, those with business income above Sh5 million per annum, employment income, rental income, limited liability companies, management and professional services.
“Eligible taxpayers will need to log onto iTax, add the TOT obligation, file the monthly returns and make the payments,” KRA said.
TOT was first introduced in the Kenyan taxation framework in 2007 with a view to enhancing tax compliance in the informal sector.
“Coupling TOT with presumptive tax is a tremendous and promising step towards comprehensive revenue streamlining of the informal sector,” Ms Meyo said.
But it will be a Herculean task to get the informal businesses to flock to cyber cafes to declare this tax without any policing, given that most are also dealing with other multiple taxes and fees.
The new taxes are the latest cost of doing business in Kenya. Currently, small businesses have to pay daily fees to county government or secure an annual licence to operate.
Those who are in active businesses shoulder various other taxes passed on them from transport, value added and custom taxes.
INCREASING TAX BRACKET
KRA says the government 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.
“KRA has put in place an elaborate tax education framework tailored to meet the needs of the sector and enhance compliance,” said the taxman.
All tractors used for transport will now attract VAT at the standard rate of 16 per cent. Only those in the agricultural sector will be spared the tax.
This provision came into force in November last year among other early taxes.
But there is still confusion on when and how the government will implement the tax on the digital marketplace given that Treasury Cabinet Secretary is yet to publish regulations that will see businesses anchored on social media. Online businesses and e-commerce sites come under the tax net.
A digital market place was defined as “a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means”. This tax is to be effected this January as well.
Betting companies were also slapped with a 20 per cent excise duty on the amount wagered or staked.
The duty is to be levied at the time a person stakes the money on a platform or other medium provided by a bookmaker.
The tax has further increased the cost of betting and was meant to discourage betting activities.
Payment of reinsurance premiums to firms abroad will now be subject to five per cent withholding tax. But not everyone will suffer the new taxes.
Investors in the plastic recycling business will now pay a preferential corporation tax rate of 15 per cent for the first five years instead of the 30 per cent as an incentive for investors to put up plastic recycling plants.
Also, all youth registered with the Ajira Digital Programme will be exempted from paying taxes from any income earned under the programme for the next three years.
However, they will have to part with Sh10,000 as subscription fees after registration.
The programme hopes to allow youth working as digital freelancers to earn tax-free income.
The ICT Ministry is expected to work with the National Treasury to develop the framework for registration.
The Finance Act has also exempted taxes on interest income from all listed bonds, notes or other similar listed securities used to raise funds for infrastructure, projects and green bonds.
Also spared from withholding taxes are businesses providing services such as security, cleaning, outside catering, transportation of goods, marketing and advertising, sales and promotion.
Though the proposal to tax the above parties was made at budget reading, it did not make it to the Finance Act.
But the Central Organisation of Trade Unions (Cotu) on Monday condemned the move by the government to implement the Turnover Tax.
The union said the tax will adversely affect small enterprises and is likely to bring to a halt the steady growth that has largely contributed to the country’s economic development.
“The sales tax will hit hard start-up companies and existing Small and Medium Enterprises,” said Cotu Secretary-General Francis Atwoli.
He asked the government to look for other ways of generating revenue, saying taxing SMEs will not only destroy the fastest growing sector of the economy but also render many Kenyans jobless.
“Cotu appeals to the President to scrap the tax immediately. Its implementation is retrogressive.”