Kenya ropes in small traders for wider tax bracket

Kenya’s tax agency has gone all in to bring small-scale traders and informal sector workers into the tax bracket to increase ordinary revenues, but possibly deviating from the government’s initial plan of taxing ‘trade’ less and ‘wealth’ more.

Since the beginning of this Financial Year, the Kenya Revenue Authority (KRA) has rolled out a series of measures, hired thousands of new employees and entered into deals meant to on-board the informal sector into the tax bracket.

This week, the taxman entered an agreement with the Eastleigh Business District Association, a lobby group for traders in one of Nairobi’s largest informal trading centres, to collaborate in enhancing voluntary tax compliance by its members.

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Earlier, at the annual tax summit last week, KRA’s commissioner-general Humphrey Wattanga said the taxman is working on policies that will tap into the “great tax potential” of the informal sector, which is estimated to employ over 80 percent of Kenya’s workforce.

“One of the initiatives under KRA’s tax base expansion programme is netting the informal sector into the tax bracket, the majority of whom are the MSMEs,” Mr Wattanga said.

These remarks came barely a month after KRA deployed 1,400 field officers who, although the authority said will “support taxpayers,” are widely considered to be meant to seal tax loopholes and ‘encourage’ compliance, especially among informal sector businesses who have traditionally been out of the tax bracket.

In a statement last month, the taxman said the move was “anchored on KRA’s adoption of a more facilitative approach with taxpayers,” a transition that will see it renamed to Kenya Revenue Service to encourage voluntary compliance.

Last week, the authority said it will “work with National Treasury to establish policies that will simplify, harmonise and reduce the multiplicity of taxes obligated to the informal sector,” in efforts to improve wilful payment of taxes by sector.

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However, questions abound over the effectiveness of these efforts in boosting tax revenues and whether they resonate with the President William Ruto’s remarks last year that hinted at a shift towards more ‘wealth’ taxes and less ‘trade’ taxes.

“We are over-taxing trade and under-taxing wealth. We will be proposing tax measures that begin to move us in the right direction,” Dr Ruto said during his inaugural address to Parliament last year.