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Kenyans Closing Businesses Over New Tax

  • Some online-entrepreneurs in Kenya are considering changing their business models, others are still in a dilemma on how to conduct their activities, while a few are passing any extra costs to consumers due to the new taxes that were effected at the start of 2021.

    Despite businesses and individuals grappling with uncertainties brought about by the Covid-19 pandemic, new taxes were introduced such as the Digital Services Taxes (DST).

    Small and Medium Enterprises (SMEs) are the backbone of the Kenyan economy employing over 30 percent of the working population, contributing 33 percent to GDP.

    Worryingly, the new tax burden adds to the already existing dilemma faced by such companies, with many now considering closing down as the only option.

    A file iumage of the National Treasury

    The National Treasury offices at Harambee Avenue, Nairobi

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    Most businesses continue to perform below capacity riddled with a high mortality rate of 75 percent within 3 years of inception underpinned on challenges such as access to finance, access to markets, access to information, lack of management skills, access to technology, and unsupportive policies among others.

    SMEs have borne the full brunt of the spill-over effects of Covid-19 to business operations with many having taken drastic measures in order to survive, like laying off personnel, vacating premises, selling off personal and business assets.

    As the economic effects of the lockdowns worldwide begin to solidify, businesses large and small are collapsing. While large businesses have debt and expenses that seal their fate, small ones lack resources to absorb even short-term losses.

    SME owners have experienced dramatic falls in business activity and revenue due to restrictions arising from the pandemic, and are struggling to pay their employees and stay afloat.

    The hair and nail salons of downtown Nairobi as well as those located across the various neighborhoods are part of the SMEs that are feeling the full impact of the various measures taken up by the government to curb the spread of the deadly virus. 

    Such social gatherings are not permitted under the current regulations so there is less reason to frequent these establishments.

    Businesses in Nairobi that are also either slowing down or closing are also finding it difficult to access government support.

    The recent fuel price hike has made the situation even worse as it has impacted on all sectors of the fledgling economy.

    As for the DST, the national government introduced it in a bid to shore up its revenues amid growth in digital transactions.

    The tax is payable on income accrued in the country from services offered through a digital marketplace.

    Digital services providers are expected to pay 1.5 percent of the gross transaction value, according to the Kenya Revenue Authority.

    “In the case of the provision of digital services, one pays 1.5 percent of the payment received as consideration for the services and in the case of a digital marketplace, one pays the tax on the commission or fee paid to the digital marketplace provider for the use of the platform,” notes the agency.

    Both local and foreign online businesses would be expected to pay the tax.

    On January 4, the Kenya Revenue Authority informed the public of changes in tax rates introduced through the Tax Laws (Amendment) No. 2 Act of 2020 which was published on December 24, 2020, with respect to employment income, Corporation Tax, and Legal Notice No. 206 of 2020 on Value Added Tax. 

    The new tax rates replace those introduced in April 2020.

    Times Tower

    Times Tower, KRA headquarters in Nairobi

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