Kiosk owners in Kenya set to pay tax as KRA widens net

A barber at work in his kiosk in Kakamega County. All businesses, including small-scale traders, will now be required to pay tax as the Kenya Revenue Authority works to meet its targets. (PHOTO: CHRISPEN SECHERE/ STANDARD)

Kiosk owners could be forced to pay tax as the Kenya Revenue Authority (KRA) moves to ensure that all businesses are compliant.

In a public notice yesterday, KRA announced it would conduct door-to-door inspections to ensure tax compliance.

This is the most drastic step ever considering all businesses, including those in the informal sector such as small-scale farmers, are targeted. They will be expected to pay taxes based on their turnover, not profits.

Other small businesses targeted are rental properties, which have remained elusive to the taxman.

The agency said it had sent officials to inspect all businesses in all towns.

“KRA wishes to notify the general public that it is carrying out on spot verification of the location of properties and business premises through the block management approach in all towns,” the agency said.

“Those visited during the exercise, particularly property owners and traders, are by this notice required to accord KRA staff the necessary support and provide information as may be called upon.”

However, it was not immediately clear what action the agency would take against those found not to be tax compliant. KRA has been falling behind its revenue collection targets for years because Kenyan businesses mainly operate informally.

Only three years ago were Government suppliers told to ensure that they were tax complaint. This meant even major businesses, including those selling goods and services to the state, may have been pocketing tax-free profits.

The latest move also follows a policy directive National Treasury Cabinet Secretary Henry Rotich issued four months ago, during the unveiling of the National Budget approximations.

Mr Rotich said everyone should pay taxes irrespective of the sector or size of business.

“We must widen the tax net so that everyone eligible to pay tax, including those in the informal sector, does so. In this respect, I have asked KRA to explore ways of taxing the informal sector and to redouble their efforts to net tax evaders,” said Rotich.

Presumptive tax

The CS said the State would ensure everybody paid taxes. This includes a demand that small-scale farmers cede a portion of their harvest in what is technically known as presumptive taxation.

“As part of the review of income tax, we are considering the introduction of a presumptive tax for the hard-to-tax segment of the population, including those in the informal sector,” said Rotich.

Kenya’s informal sector employs over 80 per cent of the workforce and supports half of the economy.

Even matatu operators will be required to pay a pre-determined fraction of their revenues, experts told The Standard.

Retailers, most of whom operate small outlets commonly known as kiosks, could also be forced to part with a share of their presumed revenues since it is practically impossible to determine their profits over a specific period.

KRA decided to go to the informal sector because small businesses do not have the capacity to keep accurate records that could eventually determine how much profit they have made.

The latest move by KRA could also point to the frustration it has faced, especially from some landlords who have been accused of ignoring voluntary compliance even after they were granted generous concessions.

Only 20,000 landlords are said to have come out when the agency extended a tax amnesty that included writing off unpaid taxes on rental incomes already received.

Yet an estimated 90 per cent of Kenyans in urban areas live in rented properties, an indication of how big the potential tax base from rental houses could be.