•Statistics show that 46 per cent of MSMEs close within their first year of establishment, and up to 80 per cent wind up before reaching their fifth birthday.
•The tax break model, Kenya National Chamber of Commerce and Industry CEO Patrick Nyangweso said, has worked in Indonesia and Congo Brazzaville.
Image: FREDERICK OMONDI
The government should consider giving newly established small businesses at least a year before it starts levying taxes, the Kenya National Chamber of Commerce and Industry has proposed.
This, it says, will help Small and Medium Enterprises (SMEs) stabilise and cut the high rate of closure where close to half a million small enterprises in Kenya dying annually on a tough operating environment.
According to the KNCCI, most entrepreneurs take up to one year to stabilise, with majority on loans whose repayment eats into their sales despite some operating in losses. This leads to tax evasion as the businesses seek survival.
Kenya National Bureau of Statistics data indicates approximately 400,000 micro, small and medium enterprises (MSMEs) do not get to celebrate their second anniversary, raising concern over sustainability of the critical sector.
Statistics show that 46 per cent of MSMEs close within their first year of establishment, and up to 80 per cent wind up before reaching their fifth birthday.
“What we are asking the government is that the small businesses, which majority are owned by the youth, be given a window of between six months and one year before they are brought into the tax bracket,” KNCCI chief executive Patrick Nyangweso said during an interview with the Star on Thursday.
“They register their business today the next month you have brought them into the tax bracket, this is really undoing.”
It is estimated that of the estimated 17 million SMEs in the country, Kenya Revenue Authority has about 3.5 million in the tax bracket, with the rest “dodging to survive”.
The tax break model, Nyangweso said, has worked in Indonesia and Congo Brazzaville.
Indonesia does not require small companies to pay income tax for six months.
MSMEs account for up to 90 per cent of private enterprises, contributing about 40 per cent of GDP and accounting for over 80 per cent of employment.
According to the State Department of Micro, Small and Medium Enterprises PS, Susan Mang’eni, local businesses have been facing a myriad of challenges, hindering them from competitively participating in the domestic and international markets.
They include lack of resources (finance, technology, skilled labour, market access and market information).
Others are lack of economies of scale, higher transaction costs relative to large enterprises, lack of networks, increased competition and concentration from large multinationals and inability to compete against larger firms on research and development, hence fail to grow on product development.
Central Bank of Kenya notes that access to credit has remained a big headache for small enterprises, limiting their growth and expansion.
Mang’eni said the Kenya Kwanza government has however prioritised the MSME sector among the five key pillars that will be key in driving economic development.
They have been integrated into agriculture, housing and settlement, healthcare and digital superhighway and creative industry, to ensure full participation, she said.