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Is the Kenyan taxation system hampering SME growth?
SMEs constitute a big portion of Kenya`s private sector but multiple taxes charged to them has been hindering their growth and ability to create jobs. An estimated 400,000 SMEs in the country shut down after only two years in business, mainly due to challenges in the regulatory environment. Richard Muteti, Chairman of Kenya National Federation of Jua Kali Associations joins CNBC Africa for more.
Thu, 27 Feb 2020 10:12:45 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Impact of multiple taxes and devolution system on SMEs' costs and competitiveness
- Advocacy for a one-stop-shop tax system and appropriate taxation for small businesses
- Regulatory challenges including access to finance, skills, competitiveness, and market issues
Small and Medium Enterprises (SMEs) play a crucial role in Kenya's private sector, but the multiple taxes imposed on them have been a significant barrier to their growth and job creation efforts. It's estimated that around 400,000 SMEs in the country shut down within two years of operation, primarily due to challenges in the regulatory environment. Richard Muteti, Chairman of Kenya National Federation of Jua Kali Associations, recently addressed the issue of taxation and regulatory challenges faced by SMEs in Kenya in an interview with CNBC Africa.
Muteti pointed out the impact of the current devolution system, highlighting how the taxes imposed by various counties along transportation routes are gradually increasing the costs for SMEs. This, in turn, makes businesses less competitive as profit margins are eroded along the way. To tackle this issue, Muteti advocated for a one-stop-shop tax system to streamline the process for SMEs and reduce the financial burden on them.
The conversation then delved into the issue of sustainable taxation for both small and large businesses in the region. Muteti emphasized the need for a differentiated tax regime that takes into account the unique features and challenges faced by small businesses. He stressed that taxing small businesses correctly could be a significant source of revenue for the government if done in a way that encourages their growth.
Apart from taxation, Muteti outlined several regulatory challenges hindering SME growth in the region. These challenges include lack of access to finance, limited business and technical knowledge, inadequate skills and technology support, and a shortage of affordable credit options. He also highlighted issues related to competitiveness, market access, government procurement, and exposure for SMEs.
In order to enhance the competitiveness of SMEs in East Africa, Muteti recommended addressing key areas such as productivity, production capacity, product quality, branding, patenting, and innovation. By focusing on improving these aspects and creating a more conducive regulatory environment, small businesses in the region can thrive and contribute significantly to economic growth.
The call for taxation and regulatory reforms to support SMEs in Kenya is crucial for fostering entrepreneurship, job creation, and overall economic development. As the government and policymakers consider the necessary changes, it's essential to prioritize the needs of small businesses and create an enabling environment that allows them to prosper.
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