Minimum tax sends shivers down the spine of traders
Kenyan small and medium enterprises (SMEs) face tough times ahead as the punitive minimum tax takes effect at a time most most businesses are still recovering from the effects of Coronavirus pandemic.
The minimum tax which will mainly affect loss making entities and companies with low profitability margins is among a raft of measures the taxman is trying to use in order to broaden the tax base so as to reach his target which has consistently been missed in the last couple of years.
According to experts, depending on how much traders make annually, even mama mboga and other small traders will be liable to pay the new taxes in this tax juggernaut.
“Small traders who are eligible to turnover tax for example between Sh500,000 and Sh5 million are eligible to turnover tax.
The rest of the traders fall within the category of minimum tax under section 12D,” said Francis Kamau of Ernst Young.
However, according to the guidelines released recently by Kenya Revenue Authority (KRA), people engaged in businesses where the retail price is controlled by the government, such petrol stations, will not have to pay the newly introduced minimum tax.
Similarly, people engaged in insurance business and those in the extractive sector, such as mining, are also exempted from the minimum tax. Additionally, income from employment, residential rent income, and any income subject to capital gains tax will also not be subject to minimum tax.
Companies operating in the digital market place, such as Google and Facebook, and are already paying the newly introduced digital service tax will also be exempted from paying the minimum tax provided the tax payable on taxable income exceeds minimum tax payable.
Similarly, those paying withholding tax, such as consultants, will be exempted from the minimum tax if the tax payable on taxable income exceeds minimum tax payable.
Under the law which became effective on January 1, businesses that declare losses will still be required to pay one per cent of their gross income in taxes.
“A person who upon preparation of accounts for the accounting period, establishes that they are in a loss position, minimum tax paid shall be final,” says the KRA guidelines.
“A person whose tax payable from income earned is less than minimum tax, shall not be eligible for refund of the excess tax,” it adds.
The tax will be paid quarterly, with payment due on April 20, June, September and December every year.
Where a person is liable to pay minimum tax and is in a loss position, the loss shall be carried forward, according to the taxman.
Introduction of minimum in the country tax has received stiff opposition from the business community with some analysts terming it a punitive measure.
Tonny Osambo, a tax analyst, dismissed the introduction of the tax as an attempt to complicate the tax process when Kenyans need a simpler system.
“It calls for a lot of paperwork which many of our people are not able to do. In the process KRA comes with very punitive measures for not filing,” he added.
