Taxes that might hit your bottomline

1. Turnover tax

If you run a small kiosk and generate Sh1,600 per day, assuming it operates six days a week, you will beginning July 1 be required to pay a turnover tax of three per cent on this revenue if the proposals in the Finance Bill 2023 sail through parliament.

The Bill has proposed lowering the threshold of firms that pay turnover tax (TOT) to firms making as little as Sh500,000 per year.

This is expected to increase the number of people in informal businesses that are in the tax bracket. It has also proposed lowering the upper limit for the turnover tax to Sh15,000 per year. Currently, firms with a turnover of between Sh1 million and Sh50 million pay the tax.

The rate of the turnover tax has also been pushed up in the Finance Bill 2023 to three per cent of a company's turnover, from the current rate of one per cent.

Other than pushing the very small businesses into the tax net, the proposal will also have the effect of pushing the small and mid-sized businesses with a turnover of over Sh15,000 to pay higher tax rates at a rate of 30 per cent.

"The proposals seek to expand the turnover tax base by targeting persons with turnover between Sh500,000 and Sh1 million who were previously exempt. Further, the Bill caps turnover tax to persons with a turnover of Sh15 million down from the previous Sh50 million," said KPMG in an analysis of the Finance Bill 2023.

"The change aims to bring to tax informal businesses while pushing larger businesses to the mainstream tax regime."

According to Fred Omondi, the lead tax and legal business at Deloitte, including businesses with a turnover of Sh50 million among those required to pay tax under TOT was supposed to make it easier for small and mid-sized companies to be tax compliant.

If the Bill is passed, these businesses, he said, will now be migrated to the same tax regime as large companies, which pay an income tax of 30 per cent and also go through a rigorous tax compliance process that could also add to the cost of doing business for the small and medium enterprises (SMEs).

He noted that while it might bring more traders to the tax net, it would also see many slightly larger businesses falling out of the TOT bracket.

"Businesses with a turnover of over Sh15 million will now fall into the normal income tax computation where they will pay 30 per cent income tax. This may be more difficult for them to comply," said Omondi.

2. Excise duty

Also hit will be businesses that ply the beauty trade, many of them micro and small enterprises. The Finance Bill 2023 has proposed introduction of five per cent excise duty on such products as human hair, wigs, false beards, eyebrows and eyelashes, artificial nails.

If the proposal sails through, such businesses as saloons, nail bars could see a reduction in footfall owing to high cost of products that they use to make their customers look glamorous.

"The introduction of these products to the ambit of Excise Duty will result in a further increase in the cost of acquiring these products given that the cost of excise stamps on cosmetics products has recently increased by 317 per cent through the Excise Duty (Excisable Goods Management System) Regulations of 2023," said PwC in analysing the bill.

3. Advance tax

The Bill has also proposed a hike in advance tax paid by public service and commercial vehicles. The advance tax for passenger vehicles will increase to either Sh100 per passenger per month or Sh5,000 per year, whichever is higher, form a rate of Sh60 per passenger or Sh2,400 per year.

Advance tax for cargo vehicles will double to Sh3,000 per tonne per year or Sh5,000 per year, whichever is higher, from the current rates of Sh1,5000 and Sh2,400 per year.

Advance tax is paid by owners of commercial vehicles and include passenger vehicles such as matatus, taxis and tour vans as well as cargo vehicles such as pick-ups, lorries, prime movers, trucks and trailers.

Additionally, players in the transportation business, which are largely small businesses, are set to be hit by higher fuel costs with the National Treasury proposing to increase the Value Added Tax (VAT) charged on fuel to 16 per cent from eight per cent.

Transporters, especially PSV operators, could be at a loss as whether to increase costs and lose business as Kenyans opt to cut on their commutes to essential travel only - which is already been happening as they grapple with higher cost of living - or absorb some of the increase and take a cut on their margins.

4. Startups

Among the winners in the Finance Bill 2023 proposals include start-ups, specifically their employees who get become shareholders through Employee Share Ownership Plan (ESOP). The Bill proposes to defer tax on shares received by employees in place of cash emoluments from "an eligible" start-up.

The proposal seeks to encourage start-ups to allow employees to benefit from the growth of the company by issuing employees with shares.

The government hopes that will encourage the growth of start-ups while partly addressing the issue of unemployment in the country if this can bolster the youth to start small businesses.

"The proposed amendment seeks to encourage start-ups to allow employees to benefit from the growth of the company by issuing employees with shares. This is a crucial proposal as it eliminates the immediate need to finance salaries and allows employees to benefit from the growth of the company. Unlike normal shares, the tax point is deferred even though the benefit may accrue immediately," said KPMG.

Other winners include furniture makers following the proposal to slap imported furniture with 30 per cent import duty as well businesses in the fish industry, where imports will be subject to an import duty of Sh100,000 per metric tonne or 20 per cent, whichever is higher.

"The Bill also seeks to impose excise duty for imported furniture... this shall protect and promote local production, including our jua kali sector engaged in the manufacture of furniture," reads a brief on the Bill by the Leader of Majority.

"The Bill imposes excise duty on imported fish and hence seeks to protect the local fishing industry which provide a source of living for many Kenyans."