Tax flop on small traders to hit KRA

A vegetable seller at a market in Kisii town. Many small traders have limited contact with Kenya Revenue Authority's tax system, frustrating tax collection efforts. [File, Standard]

Court cases and slow uptake of new taxes on small traders are likely to curtail the taxman's efforts to meet Treasury’s Sh1.6 trillion revenue target this year.

Kenya Revenue Authority (KRA) had as of the end of last month collected Sh1.2 trillion, according to Deputy Commissioner Corporate Policy Maurice Oray.

“The presumptive tax performance was not optimal as we had expected, and one of the reasons is that it had just been introduced and the uptake was still ongoing,” said Oray at a forum to sensitise the public on new tax measures in Nairobi yesterday.

Through the 15 per cent tax on the value of business licences that targeted an estimated 2.7 million informal traders, including mama mbogas and cyber café operators, Treasury had hoped to net Sh5 billion.

It, however, failed to take off after counties issued licences without loading the KRA charge.

"The issue of integration with counties is still being addressed, and the President gave a directive that the county governments and KRA have a single collection system," said Mr Oray.

But without going into specifics, he said collections across traditional sources of taxes - excise duty, Value Added Tax, Pay As You Earn and import duty - were higher than last year.

Treasury has reintroduced the turnover tax to make up for the revenue shortfall after the flop of the presumptive tax, which Mr Oray said would cover as many taxpayers as possible going forward.

"One of the key issues is treating the sectors that have largely remained untaxed, particularly the informal sector where we have proposed that we have a hybrid system of what is currently the presumptive tax and the turnover tax,” he said.

Mr Oray also explained that KRA could not raise taxes from financial institutions, which challenged the authority’s application of sections of the Finance Act 2018 that sought to start imposing new taxes in July even before they were approved by Parliament.