Sales Tax otherwise known as turnover tax is a tax levied on blanket sum of sales made by a business. Sales tax does not consider other aspects like operating costs, or profits or losses made by a business.
Therefore, if a small business makes sales of a hundred thousand, that figure of a hundred thousand is taxed. Taxation rates vary from country to country. For example its 3% in Kenya.
Turnover tax can have detrimental effects on small businesses. This type of tax is a punitive kind type that should be levied in instances where the authorities seeks to discourage consumption of a particular good.
A good example sales tax can be imposed on goods that deem to affect the health of citizens such as cigarettes. That can discourage business people in engaging in that kind of business.
Kenya Finance Bill 2019
The finance bill of 2019 became law in Kenya in January of 2020 l. One of its key components is the reintroduction of turnover tax.
Its interesting to wait and see the effects of this on small businesses and the economy in general. But it is obvious this development will have negative effects.
Businesses shut down
We are likely to see increased tax defaulters, the tax collector may require more resources to enforce compliance. Kenya Revenue Authority may have to punish non compliant business. Fines and operational licences may be withdrawn which may result in people loosing livelihood.