The new Turnover Tax is repressive, scrap it

In October 2018, President Kenyatta issued a public apology to small-scale entrepreneurs at a summit at Strathmore University over the government’s failure to provide a conducive environment for business. Subsequently, he made a commitment that the government would support SMEs through infrastructure development, including reliable and affordable electricity supply, favourable tax regime and responsive legal and policy frameworks.

During Jamhuri celebrations last month, the President reiterated the government’s pledge to facilitate the growth of SMEs and, for good measure, did two things. First, he directed the Attorney-General, National Treasury, Kenya Revenue Authority and Judiciary to formulate a policy to waive court fees for commercial disputes under Sh1 million, which, essentially, targets small-scale traders. Secondly, he launched a mobile loan scheme, dubbed Stawi, that allows small-scale traders to obtain unsecured loans of Sh30,000-Sh250,000 at a discounted nine per cent interest.

These provide tangible efforts by the government to boost SMEs, recognising the crucial role they play in the economy. Statistics show SMEs hire up to 75 per cent of the working population.

Given this background, it’s difficult to reconcile the latest move by the very government to introduce Turnover Tax (TOT) on small businesses to be calculated at three per cent of the sales. Beginning January 1, KRA is set to collect this new tax, which is one of the revenue streams it’s pursuing to raise income.

Tax is a civic duty. It provides the kitty from which the government runs its operations and provides services and infrastructure. In recent times, KRA has consecutively failed to achieve its targets. Consequently, the government has been forced into extensive borrowing, internally and externally, to meet its budget deficits.

But the point of discussion is the level and extent of taxation. The citizens are overburdened by tax. Business people are worse off. Small-scale traders operate under very difficult conditions and hardly make ends meet. The government conjuring up a tax for them in a bid to raise its incomes is pushing its luck too far.

The World Bank’s 2019 “Ease of Doing Business” report returned a favourable verdict on Kenya, which improved to position 56 among 190 countries surveyed — a stellar performance compared to position 129 in 2013. The introduction of taxes like TOT risks eroding those gains.

KRA’s biggest problem is not SMEs, but its inability to net all who should pay taxes. Corruption, collusion and non-compliance by taxpayers and its staff are the order of the day. Moreover, taxes are never put to good use. This new tax is an unacceptable.​