Turnover Tax Re-Introduced, MSMEs to Pay 3% On Gross Sales

The Kenya Revenue Authority (KRA) has re-introduced turnover tax requiring all MSMEs to start paying a 3 percent tax on all their sales.

On 7^th November 2019, President Uhuru Kenyatta signed into law the Finance Act 2019, which consequently reintroduced the turnover tax for businesses whose annual sales and income do not exceed 5 million shillings in a bid to boost tax collections.

In 2018, the Treasury had scrapped off the turnover tax after it recorded poor performances since most traders were failing to make revenue disclosures.

According to KRA, businesses will from now on be expected to file their turnover tax on or before 20^th of each month, with late payments attracting a 5 percent penalty.

Additionally, the KRA states that late filing of returns for MSMEs will attract a 5,000 shillings penalty every month.

On top of the turnover tax, MSMEs are also liable to pay presumptive tax, offset against payable turnover tax, which stands at 15 percent of the amount payable for a single business permit.

MSMEs are the largest contributor of new jobs deeming the sector as the backbone of the Kenyan economy, despite operating in informal settings.

According to data from the Kenya National Bureau of Standards (KNBS) in 2018, the informal sector accounted for over 90 percent of all the new jobs created.

The new tax imposed on MSMEs will likely put a burden on the already strained sector due to the deteriorating business conditions in the country.

The turn over tax will, however, be exempted from persons registered for VAT, employment income, and rental income, limited liability companies, management and professional services.

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