On Wednesday, January 1, 2020, turnover tax for traders operating Small and medium enterprises (SMEs) came into effect.
The re-introduction of the levy, which was suspended in 2018, will see traders whose annual sales are below Ksh5 million start paying a three percent tax on their sales to the Kenya Revenue Authority (KRA).
The levy was reintroduced after President Uhuru Kenyatta signed the Finance Act 2019 into law in November last year with the aim of boosting tax collections.
The Treasury had dropped the turnover tax due to its poor performance as most traders failed to make revenue disclosures.
It replaced the sales levy with a presumptive tax at the rate of 15 percent of the single business permit fee issued by county governments when renewing their permits.
The government seemed to have been deliberate on the move as the tax allowed KRA to gather additional data on small traders, setting the stage for the return of the turnover tax.
Even with the reintroduction of the levy KRA maintains that the presumptive tax will remain an advance tax that will be deducted against the turnover tax.
To defend KRA’s move to retain presumptive tax, KRA deputy commissioner for corporate policy Maurice Oray said, “The key thing is to recruit as many taxpayers as possible within that bracket, which has remained largely untaxed.”
The turnover levy comes at a time the nation continues to experience increasing concerns over tough economic times and is expected to overburden SMEs who continue to decry depreciating returns.
This is as even Central Bank Governor Patric Njoroge predicted yesterday that the new year might not be smooth.
“The bad news is 2020 may prove as challenging. But we believe we are ready and will prove up to the task, ultimately improving the lives of those around us especially the most needy,” Governor Njoroge posted on his official Twitter account.
On the other hand, the tax is expected to boost KRA’s revenue collection from a majority of small traders, who have not been paying state taxes.
KRA has had difficulties increasing taxes in line with GDP growth or with the introduction of new taxes, missing the targets set by Treasury every year.