The National Treasury tabled the Finance Bill, 2023 before the National Assembly on Thursday, 4 May 2023. The Bill proposes a several tax changes aimed at growing the tax base and raising revenues to meet President Ruto’s ambitious budget of KES 3.6 trillion for the year 2023/2024. For small traders aka hustlers, these changes present both opportunities and challenges.
New Taxes for Hustlers
The Bill’s proposal includes introducing an export and investment promotion levy on stipulated imports, a 3% contribution by employees and employers to finance affordable housing projects, and an exemption of exported services from VAT. It also outlines an increase in turnover tax from 1% to 3%, and a 15% withholding tax on digital content income. The VAT rate on petroleum products is also set to increase from 8% to 16%.
Mobile Money Charges
However, it’s the Central Bank of Kenya (CBK)’s changes to bank transfer charges that are causing concerns for small businesses. The CBK announced a 20% excise duty. National Treasury has proposed a reduction of the 20% excise duty to 15%, and from 12% to 10% for mobile money transfer services. This move, according to Treasury Cabinet Secretary (CS) Njuguna Ndung’u, aims to cushion Kenyans and small businesses.
The proposed changes, however, have not been without controversy. Small entrepreneurs are facing tough times ahead as Parliament approved the proposal by the Kenya Revenue Authority (KRA) to bring even the smallest businesses under the tax net. This would be achieved through a requirement for these businesses to use the Electronic Tax Invoice Management System (Etims) to record sales. This move has raised concerns that it risks driving many small enterprises out of business.
The Finance Bill also proposes that large firms that supply to the micro, small and medium-sized enterprises (MSMEs) should only deal with businesses that comply with Etims. Stakeholders argue that this could have a negative impact on small traders who cannot afford to procure electronic tax devices. The implementation of Etims on small enterprises is seen as a big risk to their existence and the many low-skill jobs they create.
“The use of electronic tax invoices is meant to enhance compliance and seal revenue leakage,” the Finance and National Planning Committee explained, rejecting proposals to amend the clause.
Nonetheless, many MSMEs are not registered for Value Added Tax (VAT) purposes as they have not met the threshold for VAT registration. As a result, businesses may scorn trading with MSMEs as such merchants are not able to generate valid tax invoices. This could have a negative impact on the MSMEs operating in the country, warns professional services firm, PricewaterhouseCoopers (PWC).
These changes in tax policy under Ruto’s administration highlight the delicate balance the government must maintain between widening the tax base and supporting the survival and growth of small businesses. “Hustlers” are vital for economic growth and job creation in Kenya.