Implications of more taxes, regulations for new businesses

What you need to know:

Corruption and burdensome taxes often detract entrepreneurs from setting up or even staying in business. Therefore, the current administration’s highest priority should be to address the issue of declining tax morale if it expects to restore public trust in the next 4 years.

Although local entrepreneurs received significant focus under the Mkapa administration in the early 2000s to encourage such establishments to be part of the formal sector, it appears to have been a challenge to maintain this momentum in recent years. One anecdote given to me recently related to an advert for a salon business being used as justification to demand tax. That same salon would also be obliged to renew its business licence every year and was recently advised to make payments for additional payroll taxes (4.5 per cent SDL if it employs more than 4 people and 1 per cent WCF) – and this is before social security contributions of 20 per cent shared between the employer and employee. In my view, subjecting such small businesses to these payroll taxes is a bit excessive – considering the type of revenue that an average salon or local business usually earns, which is roughly about Sh12 million to Sh20 million annually. More than that, it discourages such enterprises from offering high wages, hiring more people, and pushes them to simply go informal. Indeed, this reality was brought home to me in the anecdote in question as the salon owner apparently decided to close shop and instead provide a “home to home” service.

Implications of more taxes, regulations for new businesses

What you need to know:

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