The other day I walked to my trusted Mama mboga in the estate and engaged her in banter as I waited for her to chop my sukuma wiki order.
As she handed the pack, she asked me whether it was true that the government would soon arrest small traders who do not pay some new tax and close their shops.
That is the word that has spread among the traders following the announcement that the Kenya Revenue Authority (KRA) would start collecting the Turnover Tax (ToT) every month.
Well, it is commendable that the information reached the traders, but what they are sharing is the complete opposite.
Besides the closure of shops, some traders know that by the end of January, they are supposed to remit the cash to KRA, but the money should be remitted by 20th of every month.
The misinformation exposes KRA’s systematic failures in its plan to collect the tax. The (re)introduction of the tax should have started with a public awareness campaign to inform the affected group of what the ToT is, how much they will pay, why it is important for them to pay and how they will go about it.
The lack of this information is creating unnecessary anxiety among small businesspersons like shopkeepers, farmers, mama mboga and second-hand items sellers.
The tax targets businesses whose annual income threshold is between Sh500,000 and Sh5 million. Well, not many mama mbogas may fall in this category but that is not the information that is spreading out there.
That notwithstanding, the introduction of the 3 percent ToT for small traders is not only punitive but also portends the death of informal businesses that are at the centre of job creation in the country.
To begin with, the assumption out there is that many small businesses do not pay tax – you may have heard the maxim that if you want to get rich, start a business.
But that is further from the truth because small traders pay what KRA calls presumptive tax, which is 15 per cent of permit fees charged by counties.
This is besides other charges heaped through annual licences one is supposed to have from different government agencies depending on their business.
Therefore, the ToT, which is payable on gross sales/turnover rather than profit made, adds the taxation burden on small businesspersons. To make it clear, if you run a grocery shop, and make sales worth Sh60,000 a month, you will pay ToT of Sh1,800 every month whether you make profit or not.
To pay the tax, one would be required to keep up-to-date financial records, pay the tax and later log into KRA iTax system to file the returns.
Quite a tall order for small businesses, which operate informally and many of the operators have no knowledge in information and communications technology.
Late filing of the tax returns attracts Sh5,000 penalty while late payment will be penalised at 5 per cent of tax due, which attracts an interest of 1 per cent, making the law more punitive and may criminalize small trading.
Granted, there is a silver lining about the law. First is that if it succeeds, it will help mainstream tax collection from the informal sector thus boost government revenue. Second, accounting apps developers and cybercafé operators may find market among small traders seeking to comply with the law boosting the sector.
The writer is a business journalist