Micro, Small and Medium Enterprises are the
heartbeat of Kenya’s economy. Their entrepreneurial spirit drives job creation,
innovation and inclusive growth. Despite their significant position in the
economy, their overall tax contribution remains below potential.
At a recent African Development Bank VAT
Digitisation seminar held in Nairobi, experts acknowledged that many MSMEs face
unique challenges in meeting their tax obligations, ranging from limited
resources to complex administrative processes. To support MSMEs in thriving
while contributing fairly to national development, the experts emphasised that
tax administrations must rethink their role, not merely as regulators, but as
enablers of compliance.
One of the most impactful ways tax administration
can support MSMEs is through digitalisation, not just the transformation of
paper processes into digital forms, but a complete integration of tax into the
natural business systems used by MSMEs.
Modern MSMEs are increasingly relying on accounting
software, point-of-sale systems and mobile-based platforms for business
operations. This creates an opportunity for tax authorities to embed tax
functionalities directly into these systems. For instance, when invoicing,
payroll, or sales data is automatically connected to a tax system via Application
Programming Interfaces, tax processes such as filing, payment and reporting
become effortless. This compliance-by-design model reduces the need for separate
tax efforts, limits errors and enhances voluntary compliance.
Most MSMEs often lack the administrative capacity
of large corporations. Complex reporting requirements and manual filing systems
can be overwhelming. By automating routine processes such as registration,
filing and payment through mobile apps and digital platforms, tax administrations
can significantly lower the cost, both financial and time-related of tax
compliance.
For example, smartphone applications such as
WhatsApp can allow MSMEs to file taxes, access records, get reminders and
receive guidance all in real time. These services not only improve compliance
but also create a more inclusive and supportive environment for small
businesses.
The reliance on voluntary compliance poses risks
when taxpayers are either unaware of their obligations or intentionally evade
them. This situation creates unfair competition, particularly for compliant
MSMEs and contributes to the national tax gap. Digital systems, embedded
compliance and data analytics can play a critical role in identifying patterns
of non-compliance and targeting support or enforcement where needed.
This does not mean a punitive approach but rather
using data smartly to guide education, outreach and when necessary, action. It
ensures a level playing field where all businesses contribute fairly.
Another key area of MSME support lies in leveraging
the evolving ecosystem of tax intermediaries. The role of accountants,
bookkeepers and tax consultants is changing, with many now using cloud-based
tools and mobile services. Tax administrations can partner with these
professionals, encouraging the use of bookkeeping software and digital
solutions, which in turn simplify compliance for MSMEs.
Such cooperation can also include capacity building,
joint education campaigns and co-designed solutions that reflect the real
challenges faced by MSMEs in various sectors.
The ultimate vision is a system where taxation is
seamlessly embedded into everyday business activities. Just as Pay-As-You-Earn
systems automatically deduct tax from employee salaries, tax administrations
are moving towards models where sales, expenses and financial data naturally
flow into tax systems. This creates a near real-time compliance environment, one
that is accurate, efficient and far less burdensome.
At the Kenya Revenue Authority, we recognise that a
supportive tax administration is critical for MSMEs’ growth and sustainability.
Our initiatives, including the rollout of simplified tax regimes, the
integration of eTIMS (Electronic Tax Invoice Management System) and the
development of user-friendly digital platforms, are designed to align with how
MSMEs actually operate.
Additionally, through the Micro and Small Taxpayers
department, we are introducing more simplified solutions such as digital chatbot service, specifically
targeted at the 21–30-year-old demographic, which forms a significant portion
of MSME operators. This tool will for example provide instant, tailored
support, reducing the need for in-person visits and increasing accessibility of
tax information and services.
Tax compliance should not be a barrier to doing
business, it should be a seamless part of it. Through technology, collaboration
and a deep understanding of the MSME landscape, tax administration can shift
from being a hurdle to becoming a partner in growth. At KRA’s Micro and Small
Taxpayers department, we are committed to this transformation, ensuring that
MSMEs not only survive but thrive in Kenya’s formal economy
The writer is
the acting commissioner, Micro and Small Taxpayers at Kenya Revenue Authority
George Obell, acting commissioner, Micro and Small Taxpayers at Kenya Revenue Authority./HANDOUT
