Small businesses in the informal sector will begin to pay 15 per cent of their single business permit license fee as presumptive tax from January 1.
The tax will be paid before the renewal of their single business permits or trading licenses from their respective county governments.
According to Kenya Revenue Authority Domestic tax chief manager Judith Njagi the tax will be levied on an annual basis.
“The new tax is meant to enlarge the tax bracket in the informal sector, it excludes property owners, companies and any other firms registered for Value Added Tax,” Njagi said.
Currently, businesses which largely fall within the informal sector are paying three per cent of their gross sales as Turnover tax on a quarterly basis. Presumptive tax is set to replace the Turnover tax.
Businesses targeted by this tax are those with an annual turnover of between Sh500,000 and Sh5 million.
Commenting on the tax, Youth Enterprise Development Fund chairman Ronnie Osumba said there is need to formalise small businesses and make their contribution to the economy substantive.
He however said there is need for simplicity in the process.
“The most important issue here is to give value to SME sector so that they appreciate the need to pay the tax...small businesses generally don't refuse to pay tax, they just don't understand its complexity,” Osumba said.
He also called for a tax, licensing and regulatory regime that spurs small and mid-market growth.
Derrick Mwenda, who runs a fast food outlet in Westlands however said the tax would strangle most small enterprises.
“We are currently paying upto Sh30,000 on fees alone to sustain the business, from fire safety, food handling, health, and operational fees. An extra fee is oppressive,” Mwenda said.
His sentiments were echoed by Lucy Katua, a shop owner in the same area. Katua was surprised that such a tax.
“The move shows that this government is here to oppress us, they do not care about the small scale business operators,” she said.
The Kenya National Chamber of Commerce said the Presumptive tax lacks equity as there is no consideration of turnover when the tax is charged.
“There are possibilities that a company grossing Sh550,000 and one grossing Sh4.5 million are taxed the same based on the business characteristics. This will increase inequality and provide a disadvantage to some firm hurting market competitiveness," it said.
However, the chamber backed its implementation but called for streamlining of tax service delivery and tax education to increase levels of compliance.