THE PRESUMPTIVE TAX PREDICAMENT

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.

The 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 especially in the MSMEs sector.

Just like Turnover Tax, Presumptive Tax is payable by resident persons or business entities whose turnover does not exceed Sh.5 million during a year of income at the rate of 15 per cent 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 per cent. Don’t they say one can never run away from taxes!

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 taxpayer in these income brackets.

HOW IS SEVO DOING IT?

Uganda’s Presumptive Tax threshold is for those taxpayers whose gross turnover in a year falls below USh150 million which is equivalent to KSh.4.2 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 are 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.

LET’S CHECK ON POMBE;

In Tanzania, Presumptive Tax is applicable to resident taxpayers whose annual gross turnover does not exceed TSh.100 million which is equivalent to Sh4.4 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.

STUCK IN THE OLD;

In a surprise twist, the Finance Bill 2019 has reintroduced the Turnover Tax at a rate of three per cent 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.

In a nutshell, the foundation on which presumptive tax is laid is quicksand. It’s a morass!