Kenyan experts on Saturday warned that thousands of small, micro and medium scale enterprises (SMEs) could collapse should a proposal to tax all businesses regardless of their financial performance is enforced.
All businesses whose payable tax is below one percent of gross turnover would attract a mandatory one percent minimum tax, should Parliament approve the tax measure proposed by cabinet secretary for Treasury in the 2020/21 budget.
Victor Kimanga, a customs and global trade consultant, said the tax is a disincentive to start-ups that provide jobs to millions of Kenyans.
“The minimum tax has a negative effect on SMEs,” Kimanga said during a webinar themed “Business Resilience and Strategic Leadership for Women Leaders”.
“Imposition of this tax will cripple businesses in their infancy stage. Businesses at this stage are struggling to stand on their own. The government will cripple them by taxing them the minimum tax,” he added.
James Atema, a public policy analyst, said the Treasury’s tax measures will not create an incentive for growth of businesses.
He said without proper tax policies businesses will struggle to survive despite the government’s financial allocation to SMEs.
A 2016 survey on SMEs in Kenya by Kenya National Bureau of Statistics (KNBS) found that 46 percent of them died in their first year of establishment due to losses incurred during their operation.
Kenya has approximately 7.5 million SMEs contributing about 40 percent to Gross Domestic Product, according to the 2017 Economic Survey.
Small and medium-sized enterprises are struggling to survive due to economic disruptions caused by COVID-19 pandemic.
Patrick Njoroge, governor of Central Bank of Kenya (CBK) in May warned that 75 percent of SMEs would collapse by end of June due to limited financial resources.
The informal sector in 2019 generated 85 percent of all new jobs in Kenya, according to the 2020 Economic Survey. Enditem