In recent times, Kenya’s small businesses have found themselves at a crossroads, grappling with the impact of increased taxation and transaction fees imposed by the government and the Kenya Revenue Authority (KRA).
Faced with higher taxes, many businesses have taken a drastic step: they are ditching mobile payment methods such as Lipa na M-Pesa and paybills in favor of cash transactions.
This shift in behavior is a direct response to the government’s decision to raise the turnover tax for small businesses from 1 percent to 3 percent of their gross annual sales.
The move, aimed at bolstering government revenue, has inadvertently led to unintended consequences. Small businesses, struggling to maintain their profit margins, have opted for cash payments to avoid the additional charges associated with digital transactions.
Business owners cite the burgeoning costs of mobile and online transactions as a primary reason for this change. The increased fees have rendered digital payment methods less appealing for both merchants and consumers.
As a result, businesses have started openly encouraging their customers to pay in cash or make direct withdrawals, thereby bypassing the digital platforms that were once ubiquitous in the Kenyan marketplace.
This shift has not gone unnoticed by the authorities.
The KRA, in a bid to enforce compliance and ensure businesses meet their tax obligations, has announced plans to collaborate with Safaricom, the company behind M-Pesa.
The goal is to identify businesses that have abandoned mobile payment methods. By obtaining a comprehensive list of these enterprises, the KRA intends to conduct rigorous follow-ups and compliance checks.