Tax compliance ignorance turns many booming African SMEs into fugitives

The sad part is most of these companies going underground are eight to ten year old and were already doing booming businesses.

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More and more SMEs are turning into fugitives over lack of timely tax payments and compliance to escape stiff penalties. The sad part is most of these companies going underground are eight to ten year old and were already doing booming businesses and therefore with their demise, job losses and revenue to the government disappear with it.

Kenya Revenue Authority sounded the alarm last year during their Annual Tax Summit calling for immediate investigation to find out the root cause of the problem.

According to KRA statistics, there are many “Nil” returns and non-filers.

“High rates of non-compliant people are being recorded and over the past, KRA has been quiet about it. We need to do something about it,”  said KRA commissioner-general, John Njiraini.

Dorcas Muthoni, the founder and CEO of Open World Limited having worked with SMEs for over a decade knows this too well and says tax compliances is a big issue especially for budding SMEs.

“It is not that we don’t want to pay tax but I actually believe there can be a good way going forward for all of us in the public and the private sector to actually give a window for Tax compliance for SMEs”  She said on Tuesday at the sidelines of SME Fest held at KICC.

Statistics from the 2016 National Micro, Small and Medium Enterprises (MSME) Survey indicate that there were about 1.56 million licensed MSMEs and 5.85 million unlicensed businesses.

The reason for the huge number of unlicensed businesses is obviously tax obligations that come with it. Dorcas proposes one way of sorting out this ‘cancer’ is by offering tax incentives to SMEs.

“I believe tax incentive is a big deal right now, we have seen a lot of SMEs slowly turn into fugitives. This is what I mean I got it very wrong the first three years of my business life and then when I am 5yrs or 8yrs all my sins come back to haunt me and suddenly I am obliged to pay taxes running into millions within a very short span of time so there is a lot of challenges in this area of tax compliance”

The Cabinet Secretary, Ministry of Industry, Trade and Cooperatives, Adan Mohamed while speaking at the SME Fest noted the government was aware of this problem and had taken  deliberate systematic measures to support Micro, Small and Medium enterprises.

“One of the proposed initiatives we intend to pursue is a tax incentive for SMEs.  This will involve a launch a nationwide campaign on tax amnesty for SMEs that aims to create awareness and enhance voluntary compliance amongst SME businesses”

Adan addedSMEs who take advantage of this window of opportunity to get their tax records in order will benefit from the amnesty through a 100% waiver on, penalties and interest for the past two to three years, followed by friendly payments plan on principal taxes for the current year.

“With this tax incentive, the government will build trust with the SME sector and reduce their apprehension to register with the tax authority” he said.

The condition for tax amnesty qualification would be the full declaration of the business income, online filing of the returns via iTax and payment of principal taxes for 2014 and 2015 on a 12-month payment plan.

Indeed, one of the ways to actualize the contribution of SMEs to economic development is through the conversion of the 79% unlicensed businesses to the licensed entities which are integrated into the tax bracket.

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