The Kenya Revenue Authority (KRA) announced the coming into effect of the presumptive tax that will be payable by all the businesses with an annual income of fewer than 5 million shillings.
According to the Finance Act of 2018, all small businesses were to start paying the presumptive tax at the rate of 15 percent of business permit fee or license payable from the 1st of January 2019.
The presumptive tax is basically going to affect all the small medium enterprises (SMEs) in Kenya. In a country where close to 500,000 SMEs are dying annually despite being a key contributor of 86 percent of employment and 45 percent to GDP, the new taxes are going to hit the sector hard.
As KRA starts to deduct the tax, there has been confusion among business people as to how much will be deducted as presumptive tax. Most businesses feel nothing was done to sensitize them on how much will be deducted as presumptive tax.
Many business people think that the 15 percent will that of their annual income. This is not the case. For instance, if you used to pay for your license 20,000 shillings, the amount has now increased by 15 percent, meaning you will have to pay 23,000 shillings. For every amount you have been paying, just increase it by 15 percent and you will get the current charge.
The government hopes to collect as much as possible from the SME to fund its current budget as well as trying to cut on the ever-ballooning public debt that has now moved beyond 5 trillion shillings or 56 percent of the GDP.