KRA has engaged with several governors to seek collaboration and support in implementation of the presumptive tax. The Finance Act, 2018 amended Section 12C of the Income Tax Act (Cap. 470) to impose presumptive tax, which provides for an effective and simplified basis of taxing the informal sector. The tax shall apply to persons issued or liable to be issued with a business permit or trade licenses by a county government and shall take effect from 1st January, 2019.
Accordingly, presumptive tax shall be payable by a resident person whose turnover from business does not exceed Kshs5 million during a year of income. Taxation of the informal sector has had challenges, majorly around mode of operations of informal businesses, including lack of defined structure and a fixed location. It is estimated that revenue lost from the informal sector is between 35-55% of the total tax revenue in some countries. In Kenya, the informal sector includes boda bodas, jua kali artisans, SMEs, matatu drivers/ conductors and hawkers among others. The tax will be charged at a low rate of 15% on the business permit or trade license fees.
The due date for payment of the tax shall be at the time of payment for the single business permit or its renewal. If accorded the requisite support by all concerned stakeholders, it is anticipated that the tax will bring on board more taxpayers within the tax bracket and increase revenue collection in Kenya. This way, the country’s development projections, as articulated in the Big Four Agenda, will receive a major boost. This calls for a close working relationship between the county governments. KRA has so far met the leadership of Nairobi, Machakos, Kiambu and Siaya counties, who fully support implementation of the tax. The counties are confident that the collaboration will increase revenue collection for the devolved units and the national development. Meanwhile, Head of Corporate Policy Mr. Maurice Oray has said plans have been finalized to roll out a stakeholder engagement and a sensitization campaign on the presumptive tax. Speaking after a meeting at Customs House in Mombasa to map out strategies on how to execute the sensitization, Mr. Oray and Southern Region Head of Domestic Taxes Mr. Ronald Omulindi said the exercise will begin from the first week of December 2018, and go on for two weeks. Mr. Oray stated the implementation of the presumptive tax that is expected to contribute Kshs4 billion and will replace the Turn over Tax (TOT). The programme entails sensitizing more governors on the importance of supporting the new tax regime.