TOUGH TIMES

Tough licensing and tax reforms still a bottleneck to SME's profits

About 2.2 million small enterprises have closed shop in the past five years, according to a 2016 government report, underlining the tough challenges that the local business climate poses for small traders

In Summary

• A small business owner is required to have two licenses and one certificate but however the charges has dragged his income each year.

• Benson Musomi in Rongai, Kajiado County says it is hard to reach his break-even point between the high costs and revenues made in a day.

Benson Musomi, 31, is still struggling with high number of licenses that has contributed to slow growth of his business revenue.

The cook, running Jabecas Café in Rongai, Kajiado County says when he opened the business in October 2018 he was required to have two licenses and one certificate but charges have dragged his income each year.

I am yet to reach my break-even point which would be at Sh7,010 in minimum sales per day,” Musomi says.

 
 

This is just one of the many cases of small businesses in the informal sector that have raised concerns of unease in doing business due to high taxes and tight licensing reforms.

 Musomi says he was forced to acquire Food, drugs and chemical substance or food hygiene license paid for Sh6,000, Certificate of medical examination at Sh900 and trading license for Sh5,000.

“All are renewable after every year,” he added.

However, the regulations has proven to be burdensome for the entrepreneur who has past work experience in food, grocery and cereals stores including Tuskys’ deli food for seven years.

“My daily sales have been swinging between Sh5,000 and Sh7,000 which is also affected when students go for long vacation. They form a huge bulk of  my  customers,” Musomi said.

He has now been forced to operate an M-Pesa services in order to complement his revenues. He has also ventured into grocery business.

 

“My expenditure is outweighing income. This is not making any economic sense,'' Musomi said. 

 

He says has had to consider products in season like potatoes for menu, in order to get a better price. However, this limits other customers as he fails to focus on other foods which other customers may need.

Musomi also adds that he has had to be keen of pricing and portioning of food to increase the sales, at the same time aiming to improve customer satisfaction.

Musomi has also pointed to the prevailing tough economic conditions that have also constrained his customers.

“When I started I used to get customers buy lunch and dinner, targeting spend of Sh200 each, but this has reduced despite them commenting that they enjoy the food,” he said.

The licensing reforms for a long time have been recognised as major constraint to growth of SME and on the Kenya’s investment climate.

A report by The Kenya Alliance of Resident Associations (KARA) and Ipsos Kenya on county service delivery survey showed that about 32 per cent of businesses in counties are unsatisfied with ease of doing business and status of entrepreneurship.

This is majorly due to rush to increase revenue generation by  county governments.

Early this year, small businesses were hit further when the National Treasury through KRA  introduced presumptive  tax on business permits for small businesses with revenues  of below Sh5 million.  

This was after the previous turnover tax flopped as most traders failed to make revenue disclosures.

''In accordance with Finance Act, 2018, the presumptive tax shall become payable from January 1, 2019. All eligible taxpayers are advised to pay for the presumptive tax at the time of payment for business permit fee or trade licence,” said the KRA in a notice published in the local dailies,'' KRA said.

About 2.2 million small enterprises have closed shop in the past five years, according to a 2016 government report, underlining the tough challenges that the local business climate poses for small traders.

The Kenya National Bureau of Statistics (KNBS) report titled Micro, Small and Medium Establishments, says most of the businesses that shut down had blamed shortage of operating funds, increased operating expenses, and declining income for the collapse.