How CS Henry Rotich plans to tax matatus, kiosk operators and farmers

Farmers and matatu operators will start paying taxes in major changes unveiled on Wednesday and which are anticipated to ensure every Kenyan...

Farmers and matatu operators will start paying taxes in major changes unveiled on Wednesday and which are anticipated to ensure every Kenyan contributes to the national tax kitty.

Through the proposed presumptive tax, the State will impose an advance levy on businesses that operate informally and without proper documentation.

In the Kenyan economy where the informal sector employs more than 80 per cent of the workforce, the anticipated revenues for the State could be enormous. “As part of the review of the income tax, we are considering to introduce a presumptive tax for the hard-to-tax segment of our people including those in the informal sector,” National Treasury Cabinet Secretary Henry Rotich said in his Budget speech on Wednesday.

Small retailers, including those operating kiosks and stalls, are also on the Government taxation radar, as it seeks ways to broaden the tax base from just the two million people working in the formal sector.

“Mr Speaker, I have received a very clear message that everybody must pay taxes,” said Rotich early in his 2016-17 Budget speech presented to a packed Parliament.
“We must widen the tax net so that everyone eligible to pay tax, including the informal sector, pays tax. In this respect, I have asked the Kenya Revenue Authority (KRA) to explore ways of taxing the informal sector and to redouble their efforts in netting tax evaders.”

KRA has also been granted power to determine the applicable rate, say 5 per cent of the anticipated sales or income for businesses in the informal sector. In Uganda, the presumptive tax rate has been three per cent since 2014.

It is, however, not new in Kenya since farmers were until the 1990s paying taxes before selling their produce to the market.

In Rotich’s proposals, farmers would revert to the older system where they were required to surrender a fraction of their anticipated sales to an appointed agent; sugar millers for cane and the National Cereals and Produce Board for maize growers.

Matatu operators might be forced, for the first time, to pay a specified amount to the Transport Licensing Board on top of the existing levies before they are granted operating permits.

Mr Nikhil Hira, a partner in charge of tax at Deloitte East Africa, said the deductions are made at source and passed on to the revenue agency.

“The payer deducts it and remits the tax to KRA and gives a certificate to the supplier,” said Mr Hira, referring to how presumptive taxes would be made applicable to farmers.

Typically, buyers of agricultural produce are appointed as tax agents for the revenue authority.

In using a presumptive tax, the State defines a rate to be applied on the projected revenues since it is generally not possible to determine the exact profits that could be realised.

Mr Clive Akora, the director of tax services at KPMG, told The Standard that there was no obvious way of determining how much should be paid by productive yet informal businesses
“To go around the challenge, a specific percentage of the revenues can be prescribed,” said Akora.

And for more informal businesses like the matatu sector, KRA could work with a specified average in determining how much in revenues a bus generates.

“It is not easy, but then they have to find a value in assumed revenues to work with,” added Akora.

The matatu business is one of the biggest in Kenya, but the dynamics vary from one operator to another as the maintenance costs are not standard.

Rotich’s proposals to enable KRA tax the informal sector are informed by a large informal sector that has created the highest levels of wealth for a few people – who are however not contributing to the national kitty

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Today in Kenya: How CS Henry Rotich plans to tax matatus, kiosk operators and farmers
How CS Henry Rotich plans to tax matatus, kiosk operators and farmers
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