State targets to bring 15 million SMEs under its watch

Micro and Small Enterprises Authority is eyeing the informal sector.

In Summary

•MSEA has created an online platform that allows small businesses to register associations which will be overseen by the authority.

•The pilot stage has so far attracted 12,500 associations mainly from the informal sector such as jua kali businesses.

A jua kali artisan in Embakasi
A jua kali artisan in Embakasi
Image: FILE

The government targets to formalise at least 15 million Small and Medium Enterprises in the medium term in what could be a big win in expanding the country's tax base.

The initiative spearheaded by the Micro and Small Enterprises Authority (MSEA), in partnership with United Nations Development Programme (UNDP) will develop a comprehensive database for Micro and Small Enterprises and a central reference point for information dissemination.

MSEA has created an online platform that allows small businesses in the informal sector to register associations, which will be overseen by the authority.

The pilot stage has so far attracted 12,500 associations from sub-sectors such as jua kali.

“We are targeting to register five million SMEs in the first year, and then in the medium term, we will be able to hit at least 15 million small businesses across the country regardless of the size or sector,” MSEA chief executive, Henry Rithaa, told Journalists in Nairobi yesterday.

The move, he said, will help the government identify challenges and budget well to support MSMEs in the country.

He spoke during the handing over of ICT equipment and a vehicle to the authority by UNDP to facilitate the exercise.

According to Rithaa , only 7.1 million MSMEs are on record in a market where they are projected to be over 14.1 million.

National Treasury and the Kenya Revenue Authority have been pushing to bring on board the wider informal sector into the tax bracket and increase revenue collection for budget support.

Among strategies in KRA's 8th corporate plan launched in June is tax base expansion “which focuses on bringing citizens and business previously not paying taxes into the tax net.”

Bringing more informal sector players to the tax bracket will be a major boost for KRA which has a proposed ordinary tax collection target of Sh2.14 trillion in the next financial year starting July 1, up from the Sh1.78 trillion projected for the current financial year.

The 2022/23 budget is estimated at Sh3.21 trillion with the gap being filled by borrowing both from the domestic and foreign markets.

Over 80 per cent of annual jobs created come from MSMEs sector which also contributes up to 33.3 per cent of GDP.

Last year, the sector created 14.5 million jobs despite Covid, MSEA notes.

At least 15.1 million jobs had been created the previous year.

MSEA has however affirmed that the countrywide registration of micro and small businesses to formalise the sector is mostly aimed at business growth, rather than compliance.

A survey by the Kenya National Bureau of Statistics released in 2018 indicated that approximately 400,000 micro small and medium enterprises were not celebrate their second birthday and very few SMEs reach their fifth birthday, leading to concerns of sustainability in this critical sector.

Rithaa said formalising businesses will help identify challenges in the different sub-sectors and come up with solutions.

The government also needs data to understand what the MSMEs are dealing in which will enable it connect the businesses to markets mainly international.

“Whom do we give tenders if we don't have the statistics, whom do we give the MSEA fund to if you are not in anyway recognized. Whom do we take to trade fairs?,” Rithaa posed.

UNDP Resident Representative Walid Badawi noted that Kenya's economy is characterised by a large degree of informality, where 84 per cent of the employment is largely informal.

“Formalisation is critical not only in Kenya but the continent to help support growth of these small businesses and tap into other markets,” he said, adding MSMEs in Kenya have an opportunity to tap into the 1.2 billion people market under the African Continental Free Trade Area.