Lack of awareness blamed for low MSMEs tax revenues

Low tax awareness among the Micro, Small and Medium-sized enterprises (MSMEs) has been cited as a factor hindering tax compliance by the sector.

To ensure compliance and increase revenue collection from the MSME sector, the Kenya Revenue Authority (KRA) says it working on ways to increase tax awareness.

The authority projects to collect up to Sh2.7 trillion by the close of the 2024-2025 financial year on the back of increased tax compliance.

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 Despite the  MSME sector employing roughly 80 per cent of Kenya’s economy, tax collection from the sector is still a challenge.

KRA said that creating awareness and simplifying the tax regime would facilitate tax compliance among small businesses.

 “MSMEs by nature are largely informal, bringing the question of visibility and traceability of transactions,” said the head of E-tims at KRA Hakamba Wangwe, noting that this is what may be limiting the revenue authority from collecting taxes from the sector.

“With regards to visibility, small businesses are said to be vulnerable to missing out on initiatives they might benefit from. This is because they are not easily identifiable due to the nature of their transactions.” 

Mrs Wangwe said this is aimed at enhancing awareness of key initiatives implemented by KRA under its 9th Corporate Plan to facilitate compliance and mobilise revenue from the MSME sector.

With some of their initiatives to deal with noncompliance being mobile-oriented, the authority notes that a majority of small traders do not have smartphones.

She further noted that a lack of clarity during the implementation emerged on whether or not E-tims is a tax.

“I want to clarify that E-tims is not a tax, it is an automated way to present a record of transactions to the revenue authority,” said Ms Wangwe.

She said among the initiatives aimed at enhancing tax compliance are the tax base expansion programme, where data correction for property owners is ongoing; the voluntary tax disclosure programme and the 60/40 waiver offer on penalties and interests.