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The Enterprise Development Programme Demystifies Taxation of SMEs

  Jan 25, 2019

The Enterprise Development Programme (EDP) held their weekly class on Wednesday 23rd of January at the Strathmore University Business School (SBS) with Professor David Wang’ombe as the facilitator. The sixteen-week hands on participant programme is aimed at solving the needs and challenges faced by Small and medium-sized enterprises (SMEs). The topic of the day was ‘taxation’ and how it affects SMEs and judging by the number of students eager to speak on this, it could not have come at a better time.

To ensure the students had an opportunity for better understanding, a guest speaker from Kenya Revenue Authority (KRA) was invited. Wanja Wang’ondu, in charge of tax payer base expansion at KRA, translated the SME taxation protocols in such a manner that even the layman would find comprehendible. She led a discussion on the requirements SMEs need to meet to avoid wrangles with the tax man. Ms. Wang’ondu was keen to state that “KRA not only provides training and learning opportunities for small business owners but also welcomes feedback on tax related issues”. This opened the floor for conversations filled with constructive learning points as students got to air their frustrations with taxation processes whilst getting feedback on how to counter their predicaments.

The class touched on several aspects of taxation with key points being SMEs classification of goods and services and the way KRA operatives and auditors are expected to conduct business. Every SME needs to be aware that taxation classification is unique to products and services in the market. We have those that are exempt from Value Added Tax (VAT) and those that are taxable i.e. under either of 3 rates; 0%, 8% or 16%. As an entrepreneur you need to ask yourself; ‘in which category does my business fall?’

She emphasized on what is referred to as the ‘tax point’ and how several SMEs fail to understand at which point of their trade interaction the tax man will come calling. Ms. Wang’ondu encouraged the executive students to plan their finances to ensure their ability to pay VAT and investigate the possibility of having many sources of income to manage tax requirements in the case of delayed payments.

“So how does one benefit in business if you are always weighed down by tax?” asked Mr. Kamau an EDP student. In my view, Ms. Wang’ondu gave a deceptively simple answer, but I will let you be the judge of that. She said you should “ensure your goods or services are zero-rated allowing you to also offer to your customers at a low price”.

We could not close the session without looking into the student’s compliance concerns. This was characterized by queries on declaring revenue, auditors, raids and KRA site visits. Ms. Wang’ondu made it clear to the practicing executive students in six key points:

  1. In the event of charging for your service or goods, if an institution claims to be exempt from tax they are required to present you with a certificate stating so.
  2. Always keep your Electronic tax register (ETR) receipts and other business records dating as far back as 5 years as they will be required in the event of an audit.
  3. An audit can only be done with prior communication to the business and not on impromptu basis.
  4. You are required to make a claim of in-put tax or the likes within six months of the transaction.
  5. If KRA are conducting a visit of your business premises business is to continue as usual uninterrupted by the process.
  6. A raid is only done after a court order has been obtained where it is suspected that there are high levels of non-compliance or illegal activity in the premises.

This year (2019) the EDP plans to have two enrollment opportunities with Cohort 1 in April 2019 and Cohort 2 in August 2019. All Small and medium-sized enterprise operators are encouraged to participate as we explore locally developed businesses through case studies and engaged in discussions that will enable you to develop problem solving and good decision-making skills.

This article was written by Pamela Nyandat.

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