The Kenya Revenue Authority (KRA) plans to exempt micro and small businesses from the quarterly instalment taxes and generation of Payment Registration Numbers (PRN) as part of changes to the Turnover Tax (ToT) regime that has been in place for two decades now.
PRN is a unique, barcoded code generated on KRA’s iTax portal as a confirmation of tax payments.
ToT was introduced in a bid to provide an easier tax compliance framework for micro, small, and medium-sized taxpayers by computing their tax obligation purely based on the turnover of their business.
The ToT has, however, failed to live up to its billing of widening the tax base, with only 30,000 businesses with collections worth just Sh391 million registered in the full year 2023/24.
Tot is payable by small businesses whose gross sales does not exceed or is not expected to exceed Sh25 million per year.
‘We have just 30,000 taxpayers registered for Turnover Tax. Why have many not come forward to register for it despite its simplicity? Even after we halved the rate from 3 percent to 1.5 percent, there are still minimal coming forward. We should not have a one-size-fits-all tax administration arrangement. We have got to make tax compliance easier based on one’s sector of operation’, Commissioner for Micro and Small Taxpayers, George Obell told Business Daily in an interview.
‘If you are supplying sugarcane, for example, you are probably making that supply once a year, and that is misalignment with the requirement of four instalment taxes annually. We should give such taxpayers an easier way to settle obligations so that they don’t have to experience a complex exercise,’ he added.
The KRA said enabling tax payment directly through mobile money platforms such as M-Pesa without having to generate a PRN will form a key part of the redesign of the ToT regime in the country.
‘We are not just speaking to them; we are getting into their ecosystem, which is where and how they are earning. If, for example, a business is conducting payments through the mobile money ecosystem, you should have a solution within that mobile money system to pay taxes directly. If a small business can pay its suppliers on mobile money, why can’t the same business pay tax to KRA through the same platform,’ Mr Obell said.
The planned redesign of the ToT comes at a time when KRA targets to increase the number of active taxpayers in its register from the current seven million to 11.5 million by the close of June 2027, an ambitious 64.3 percent increase.
‘Currently, the number of people registered to pay taxes in the country is 22.6 million. The ones that are actively paying taxes out of this number are only seven million. We could easily ignore 10 million out of the entire 22 million and argue that these are the people who are both students with KRA PINs and those who fall below the taxable income threshold. So, if you clean up, there’s about five million taxpayers, ‘ Mr Obell said.
The KRA said the adjustments to ToT and its administration are among the measures it is deploying as it targets Sh500 billion in annual income tax collection from micro and small businesses in the informal sector, up from the current Sh17 billion per annum collection.