Small businesses in Kenya may soon be required to pay Value Added Tax (VAT) if the new proposal by the Kenya Revenue Authority (KRA) is approved.
The tax authority is planning to do away with the existing VAT registration limit. Currently, businesses that make at least Ksh5 million annually are required to register to pay VAT. However, if the new rules come into place, all businesses in Kenya will be expected to register to pay VAT.
This means that small businesses in Kenya may soon be expected to charge 16 percent Value Added Tax on the goods they sell.
KRA has stated that the move is aimed at boosting tax collection in Kenya. Currently, some businesses in Kenya evade paying Value Added Tax. The move by KRA is expected to raise VAT revenue in Kenya by Ksh653 billion to more than Ksh1 trillion.
If this proposal comes to pass, traders who deal with basic commodities such as phones, snacks, soft drinks, cooking gas, and cosmetics may be impacted. Service providers such as consultants may be forced to review their fees to factor in the VAT.
For many small businesses, this would indeed be a major move. Most small businesses have been operating out of the VAT system because their sales revenue is below the current limit.
However, there are fears that this move would lead to an increase in prices as businesses would pass on the cost to consumers. Other fears include the fact that this would make it difficult for small businesses to thrive.
In the current system, small businesses that earn less than Ksh5 million have the option to register to pay VAT on their own accord, especially if they want to transact with large businesses.
Interestingly, this move contradicts previous intentions in recent finance talks to raise the limit to Ksh8 million to ease the tax burden on small businesses.
If this proposal comes to pass, it would indeed be a major move in the way tax is collected, especially from small businesses across the country.