The Kenya Revenue Authority’s (KRA) is unlikely to raise any revenue from the newly reintroduced Turnover Tax (ToT) that targets small businesses, experts have warned.
Last week, KRA announced that it will from this month be enforcing ToT which has been in existence since 2008 but was never implemented as a stop-gap measure to raise much-needed revenue to fund the Jubilee Government’s ambitious projects with time fast running out for President Uhuru Kenyatta who exits the scene in 2022.
Under pressure to raise Ksh1.8 trillion before the end of this year, KRA Commissioner General Githii Mburu has in the past week sent senior managers packing under the guise that they are not meeting their targets.
In an interview with Business Today, taxation expert and partner at financial services firm PKF Kenya Michael Mburugu says that KRA’s move will not yield any taxes as there is no system in place to facilitate the 2.5 million entities that the taxman is targeting in the informal sector to pay their dues.
“From where I sit, I can say with certainty that KRA will hit a dead end with this move. ToT is not a new tax, it has been in existence, it has never worked and it is not going to work because there is no functional system or database that will allow them (KRA) to monitor how the small enterprises do business,” said Mburugu in the interview.
According to the expert, Huduma Namba was tailored to cure this problem where every citizen would have a single identification number that would suffice for all government services.
“The small businesses which KRA hopes to tax are not registered and are foreign to its systems. How will they go about taxing citizens without a plan? It will be very hard” he said.
Mburugu recommends that the taxman should first of all clean his system and borrow from the Swedish system where all citizens access services through a single Personal Identification Number (PIN) that makes it very easy for the government bring to the tax bracket citizens eligible to pay taxes once they hit majority age and are engaged in economic activity.
“That was what Huduma Namba was hoping to achieve but even that seems to have failed,” added Mburugu.
KRA in its press dispatch had said that ToT will be implemented from January 1, 2020.
ToT is a 3% tax on gross sales for business entities that post less than Ksh5 million revenue every year. The taxman also underscored that businesses with an obligation to pay ToT are also liable to pay Presumptive Tax at a rate of 15% of the business permit fee or license payable. The tax will be payable on or before the 20th of the following month.
Mburugu added that ToT and Presumptive Tax are one and the same thing only that the latter is paid before the acquisition of the business license.
Asked what options would be available for the government if the ToT experiment fails Mburugu said, “None”.
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