SMEs to Pay 3 Percent Turnover Tax to KRA

Following the Treasury’s review of the 15 percent presumptive tax contingent on county tax fees, Small and Medium Enterprises (SMEs) will now have to surrender 3 percent of their turnover to KRA.

The Finance Bill proposes a re-introduction of the turnover tax since the presumptive tax is static and does not have any timelines for the raising of single business permit fees by counties, resulting in businesses paying the same tax every year.

“The Finance Bill proposes to re-introduce turnover tax at the rate of three percent of the gross receipts of the business payable monthly and is to be paid by any resident person whose business turnover does not exceed Sh5 million annually while the presumptive tax will be maintained as a minimum tax,” it said.

Rose Mwaura, the chairperson of the Institute of Certified Public Accountants of Kenya, doubts the likelihood of the counties co-operating with the Treasury to collect the tax. This is as the Treasury directed county governments to oversee the collection on its behalf in June 2018.

“It was a failure since no harmonization of the national and county revenue collection systems was done. How did you expect county treasuries to succeed in collecting revenue on behalf of the national government where they have failed to meet their own revenue collection targets?” she asked.

As a condition of the renewal of 2019 business permits by counties, every SME was required to pay the presumptive tax through the Kenya Revenue Authority iTax platform.

According to Christopher Kirathe, EY tax partner, the aim of re-introduction of the turnover tax was for the government to collect higher revenues as it will use the data it has on individual earnings by SMEs to compel more of them to pay.

“The proposal this year is because the business license money doesn’t increase year-on-year…but the turnover tax will see more people pay since their records have been already captured,” he said.