KRA tracks millions of small traders to expand tax base

KRA will use the single business permit and withholding tax records to track millions of small trade tax evaders.

The move is meant to address a tax collection deficit in the current financial year by increasing the collection base.

In a circular, the National Treasury and KRA have ordered counties, parastatals, ministries and other government agencies to observe their responsibility as the withholding tax agents for KRA.

“At the point of making such payments, the MDAs/county governments shall deduct the applicable withholding income tax due from such persons in respect of the payments and remit the same to KRA,” Finance CS Ukur Yatani said in the circular dated December 11.

Treasury and KRA have directed counties to submit details of all single permit business traders, estimated to be three million,  to enable them collect Turnover Tax (TOT) baptised the 'patriotic tax'.

“We will have the details of all the traders when we get the details of the single business permit from counties so that we can collect the patriotic tax known as TOT,” a top Treasury official told the Star.

The new ToT demands that a trader, irrespective of whether he/she is selling at a profit or loss, is required to send Sh30 to KRA for every Sh1,000.

Sources at KRA and Treasury told the Star that the taxman will be using details of tax documents submitted from established organisations, which are tax compliant, to net down small traders evading taxes.

 “For instance, when someone is building a mall, when he/she submits his taxes we will use the withholding taxes to go for other suppliers of sand, labour and many other things to ensure everyone pays taxes,” a source at the Treasury told the Star.

The government ordered its entities to retain withholding income tax by outlining the process as indicated in the law.

"Counties, ministries and government agencies should withhold three per cent on both contractual fees and five per cent on management or professional fees other than contractual fees on companies or individuals incorporated in Kenya as withholding tax. This includes individuals and foreign companies with branches or permanent establishment in the country," the circular says.

“Withholding income tax is a tax on income deducted at the point of making payment for the service provided or work provided,”  the Finance CS said.

However, foreign individuals and companies will pay a 20 per cent withholding income tax on payments made on contractual, professional or management fees, where there is no double taxation agreement.

“In cases where MDAs and county governments make official aid-funded projects related payments, they shall furnish the contractors or other persons engaged in the implementation of the projects with a certificate of income tax deductions showing the implementation of the projects with a certificate of income tax deductions showing the gross amount paid and the total tax deducted, where applicable,” Ukur said.

The new strict rules also demand Cabinet Secretaries, accounting officers and county governors to ensure contractors submit payment certificate and invoice for the work done, fee note and invoice for consultancy services and valid tax compliance certificate.

Others are proof of payment of withholding tax on the payment being done and a letter from the National Treasury a confirming the exemption, if exempt from income tax.