Rose Muthoni @rosemuthoniN
Small and Medium Enterprises (SME) owners can attest to the fact that 2017 was a tough year.
The Banking Act 2016, which was supposed to cushion the sector from expensive loans, did the opposite — it locked small businesses, which were deemed risky, from accessing the much-needed financial lifeline.
But towards the end of the year, news that the Act could be repealed, perhaps and ironically was good news. There was ray of hope loan caps could be lifted and SMEs could access funds. But will credit taps open in the last half of this year and first half of 2019 ?
In the latest survey by the Central Bank of Kenya, banks say interest rate caps, if not repealed, coupled with the International Financial Reporting Standard (IFRS) 9 are likely to force them to tighten their lending regulations. If this revelation is anything to go by, financial institutions are likely to tighten lending to businesses that do not have security.
But all should not be gloomy as the National Treasury Cabinet secretary Henry Rotich has proposed merging of the Uwezo Fund, Women Enterprise Fund and the Youth Fund to form a Biashara Bank that SMEs can tap into to get credit and at lower interest.
During his Budget Speech on June 14, Rotich spelt out tax measures that made 2018/19 prospects look grim for this sector that provides employment to 70 per cent of Kenyans.
The presumptive tax is perhaps the biggest of the blows. Every year, you the SME operator renews business permit. Rotich now wants you to pay 15 per cent of the value of that permit as tax to Kenya Revenue Authority (KRA). If the value of your permit is Sh2,000 then Sh300 goes to KRA coffers. As long as your business rakes in below Sh5 million a year, then it qualifies to pay this tax.
Perhaps those hit most will be mama mbogas and small kiosk owners. These businesses solely exist to put food on the table. An extra expense will dent a hole in the pocket of operators.
Like they say, there are two sides to a coin. KRA has been taxing only 15 per cent of working Kenyans. This has meant that every year, for the last four consecutive financial years, KRA has fallen short of its tax targets. This has meant reduction of allocations going towards developmental projects.
The presumptive tax expands the tax bracket and brings KRA closer towards hitting its Sh1.92 billion collection target for the next financial year.
The money collected will go into making lives of the poorest half better. Cheaper healthcare, affordable housing, incentives for manufacturing and free education are some of the dockets set to benefit from taxes collected.
But this is where it gets tricky. If you own a business and every year you file nil or you do not file at all, then your goose is cooked. The presumptive tax will be used to collect data that could be used against you if you fail to file your returns.
As a business owner, make sure that you never default filling, the penalties are not pretty. Filling tax returns is your civic duty. Taxes guarantees you good infrastructure, it is what allows you to enjoy reduced off-peak electricity charges and it is what allows you to enjoy government services.
And if this does not convince you that paying taxes is important, then the requirement to get a clearance certificate from KRA before bidding for any government business should.
The new financial year that begins on July 1 could be tough for SMEs but it is important that you take advantage of all the incentives that come your way. This will help you sail through all the challenges.