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Small-scale traders exempted from Turn Over tax

2 min read
The national treasury presented the tax reliefs draft bill to Parliament for approval.

Small-scale businesses and companies with annual sales of below Sh500,000 will be exempted from paying the one percent sales tax as part of a series of measures set by government to cushion them from the impact of the Coronavirus pandemic.

The national treasury presented the tax reliefs draft bill to Parliament for approval.

Turnover tax, which was reintroduced in January, will not capture the smallest of traders after the State increased the cap for those liable to pay the levy from the current Sh5 million annually — or Sh416,600 per month — to Sh50 million per year.

That means Small and Medium Enterprises (SMEs) will be liable to pay the one percent turnover tax (TOT)

Tax Laws (Amendment) Bill, which offers legal backing to the tax reliefs announced by President Uhuru Kenyatta last month, include lower income tax for salaried employees in the formal sector and a reduction in corporate tax for large organizations.

Traders operating small and mid-sized businesses will also now pay one percent tax on their sales to the Kenya Revenue Authority (KRA), down from the three percent rate introduced in January, a move that looks set to ease the pain for enterprises struggling with low revenues.

The exemption of traders with revenues of less than Sh500,000 per month in sales will be a relief for those who run kiosks, grocery stores, salons or any other mini and small scale family businesses.

Since January 1, these traders have been paying three percent of their sales to KRA, irrespective of whether they are selling at a profit or loss. This meant for every Sh1,000 they generated as revenue, they had pay Sh30 to the taxman at the end of the month.

The small traders will also be spared the presumptive tax at the rate of 15 percent of the value of annual single business permits issued by county governments if the MPs approve the changes in the Bill.

The tax changes are geared at lowering the cost of basic items while providing workers with additional income for spending to boost consumption and sales of traders.

The small and mid-sized businesses remain the backbone of the Kenyan economy and the largest contributor of new jobs in an economy where big corporates have frozen hiring while some have shed jobs or scaled down operations to protect profits.