WHAT KENYA’S TAX POLICY MEANS FOR SMEs BUSINESSES?

Abstract

This study seeks to review Kenya's first National Tax Policy to examine whether it addresses issues that would galvanize the SME sector into formalization and tax compliance, as well as promote the growth and development of the sector. Research for the paper involved a desktop study of existing taxation legislation, expert reports, as well as SME sector strategic plans and reports published by government agencies. The focus of the study is the impact of taxation on small businesses in Kenya along four thematic areas that are central to the SME development agenda: (1) rebuilding the economy; (2) expansion to hard-to-tax sectors; (3) inclusion of innovative and other emerging sectors; and (4) driving up compliance. Study results show that while the Policy captures key issues inhibiting taxation of SMEs, it is not explicit in proffering actionable information that business owners can use to inform voluntary compliance options. The study also found that small businesses are reeling from economic hardships and require concessions to surmount their challenges. The research findings suggest that there is scanty information on SME businesses, and the government is looking into leveraging County-based licensing activities to collect primary data useful for the development of taxation policies.