Small businesses will be subjected to a double-edged sword starting January 1st 2020, as a myriad tax measures take effect.
Coming from a tough year in which most micro, small and medium-sized enterprises (MSMEs) have grappled with cash flow problems, some of the small businesses will see their January blues get worse.Small businesses that make sales of less than Sh5 million annually will be slapped with a turnover tax of three per cent on their revenues, as the Government moves to make everyone tax-compliant.This will hit hard small businesses, most of which have struggled to stay afloat.There will, however, be an opportunity for ordinary wananchi to venture into the budding online businesses being championed by the ICT ministry under the Ajira Programme.
Ajira is a government initiative in which the State plans to empower over one million young people to get jobs online. Individuals registered under this programme will, however, be expected to pay Sh10,000 per annum as registration fee.An individual who is registered under the Ajira Digital Programme will be exempted from paying tax beginning this month.
Also in January, the National Housing Development Fund (the NHDF), a critical component of President Uhuru Kenyatta’s plan to build half a million cheap houses by 2022, will be implemented.Whereas President Kenyatta has called for the law to be reviewed to make registration to the fund voluntary, the government has dangled some tax incentives in what is aimed to give the initiative a lifeline.For employees who will be contributing to the fund, the amounts they withdraw from the fund to buy a house will be exempted from income tax.Others that will get tax incentives under the Affordable Housing Programme (AFP) include contractors with a big debt than equity, but who would like to be part of the initiative. Upon recommendation of the Cabinet Secretary responsible for Housing, such contractors will be exempted from taxes starting this month.Already, goods that are imported or bought locally for direct and exclusive use in construction of houses under AFP will be exempted from paying 16 per cent value-added taxes (VAT) after the provision became effective on November 7, 2019.There has already been a reduction of Import Declaration Fees (IDF) and retention of Railway Development Levy (RDL) at 1.5 per cent in respect of goods required for the construction of houses under this scheme.“The above measures will ensure that the income earned by the fund (designed to support the President’s Big Four Agenda item on affordable housing) is not consumed by taxes but goes to the affordable housing schemes,” said Bowmans, a legal company, in its assessment of Finance Act, 2019.
The Finance Act also exempts from income tax interest income accruing from listed bonds, notes or other similar securities used to raise funds for infrastructure, projects and assets defined under Green Bond Standards and Guidelines, and other social services.Also, following the decision to ban plastic bags, the government will offer tax relief to people who start businesses of recycling plastic bags.Companies operating plastics recycling plants will be subject to 15 per cent corporate tax for the first five years of operation, after which they will start paying 30 per cent tax on the profits they make.