This archive report was first published on 3 January 2020.
As the government moves to make everyone tax-compliant, small businesses in Kenya will face a double-edged sword starting this month. The new tax measures, which come into effect in January 2020, will hit hard small businesses that have struggled to stay afloat.
Small businesses making sales of less than Sh5 million annually will be slapped with a turnover tax of three percent on their revenues. This means that small businesses will have to pay a tax of three percent on their revenues, which could further strain their cash flow.
However, there will be an opportunity for ordinary Kenyans to venture into the budding online businesses being championed by the ICT ministry under the Ajira Programme. Individuals registered under this programme will be exempted from paying tax, but will have to pay a registration fee of Sh10,000 per annum.
Also in January, the National Housing Development Fund (NHDF) will be implemented. The fund is a critical component of President Uhuru Kenyatta's plan to build half a million cheap houses by 2022. Employees who contribute to the fund will have the amounts they withdraw to buy a house exempted from income tax.
Contractors with a big debt than equity, but who would like to be part of the initiative, will also be exempted from taxes. Goods imported or bought locally for direct and exclusive use in construction of houses under the Affordable Housing Programme (AFP) will be exempted from paying 16 percent value-added taxes (VAT) after the provision became effective on November 7, 2019.
There has already been a reduction of Import Declaration Fees (IDF) and retention of Railway Development Levy (RDL) at 1.5 percent in respect of goods required for the construction of houses under this scheme.
“The above measures will ensure that the income earned by the fund (designed to support the President's Big Four Agenda item on affordable housing) is not consumed by taxes but goes to the affordable housing schemes,” said Bowmans, a legal company, in its assessment of Finance Act, 2019.
Other tax incentives include exemptions from income tax for interest income accruing from listed bonds, notes or other similar securities used to raise funds for infrastructure, projects and assets defined under Green Bond Standards and Guidelines, and other social services. Tax relief will also be offered to people who start businesses of recycling plastic bags.
Companies operating plastics recycling plants will be subject to 15 percent corporate tax for the first five years of operation, after which they will start paying 30 percent tax on the profits they make.
