Where do we stand after enactment of Presumptive Tax?

Presumptive tax came into effect on January 1, 2019 after its introduction through the Finance Act 2018. The primary aim was to replace the Turnover Tax that had proven to be ineffective in terms of revenue collection. Therefore, as of January 1, 2019, Turnover Tax was a thing of the past.

Just like Turnover Tax, Presumptive Tax is payable by resident persons or business entities whose turnover does not exceed Sh5 million during a year of income.

Unlike Turnover Tax whose rate has been three percent of the gross sales without taking into consideration the expenses incurred, the rate of Presumptive Tax is only 15 percent of the of the amount payable for a business permit to the County Government. Additional provisions under Presumptive Tax is that the due dates shall be upon payment of the business permit or renewal of the same.

Taxpayers who are eligible for Presumptive Tax may elect not to be under the provisions of this tax by writing to the Commissioner of Domestic Taxes. However, this will mean that they will then fall under the corporate tax regime of 30 percent.

Over the years, it has been difficult to convert the informal sector into taxpayers based on loopholes that existed in the implementation of various tax laws. This clause requires that a taxpayer, under the Presumptive Tax regime, account for the tax at the time of payment of business permit or renewal of the same. That which is exempt from Presumptive Tax includes income derived from management and professional services; or rental income; or incorporated companies.

The main reason for their exemption is that there are systems in place to net the tax payer in these income brackets.

Uganda’s Presumptive Tax threshold is for those taxpayers whose gross turnover in a year falls below USh150 million which is equivalent to Sh4.2 million. However, a resident taxpayer who is in the business of providing professional services such as medical, architectural, engineering, accounting, legal, public entertainment services among others is not covered under this regime. For taxpayers whose gross turnover is below USh50 million (approximately Sh1.4 million), the amount of Presumptive Tax payable is determined by the nature and location of the business.

In Tanzania, Presumptive Tax is applicable to resident taxpayers whose annual gross turnover does not exceed TSh100 million which is equivalent to Sh4.5 million. The rate of tax is based on the turnover of a taxpayer where the Income Tax Act provides the tax bands and the applicable tax rates.

In a surprise twist, the Finance Bill 2019 has reintroduced the Turnover Tax at a rate of three percent payable on the gross receipts. The Bill provides that a person subject to Turnover Tax shall submit a return and pay due tax by 20th day of the following month.

Further, the Presumptive Tax paid shall serve as a credit against the Turnover Tax. With time we shall see if Kenya Revenue Authority (KRA) will manage to raise the number of active taxpayers from 3.94 million to seven million as provided in its 7th Corporate Plan especially through the Presumptive Tax and the Turnover Tax.

The writer is Tax Consultant at Andersen Tax, Kenya.