Farmers earning more than Sh134,172 annually will soon start paying tax on their income as the Kenya Revenue Authority (KRA) seeks to recruit more taxpayers to meet revenue collection targets.
The taxman reckons that commercial small-scale farmers whose average monthly income is above Sh11,180 will be required to pay taxes similar to those paid by employees in government and the private sector.
The targeted farmers will account for nearly half of the nearly two million taxpayers that the KRA intends to recruit by 2018.
Agriculture contributes nearly a third of Kenya’s economic output. Currently, small-scale farmers do not pay income tax on their earnings and the KRA expects to net 560,000 tea growers, 150,000 coffee farmers and 250,000 sugarcane growers.
“The following taxpayers are being targeted, commercial small-scale farmers whose income puts them in the taxpaying bracket,” said the KRA in a notice on a recruitment drive that will also target about 2.7 million small businesses that are not registered for tax purposes and about 85,000 landlords not paying duties.
Many small- and medium-size businesses do not register voluntarily while those that do often fail to keep adequate records, file tax returns and settle their tax liabilities promptly.
The taxman will have to grapple with poor record keeping among rural farmers in what will likely become a chaotic tax collection campaign.
Abundant rains helped boost agro production last year, lifting economic growth 5.6 per cent. Farmers will be expected to keep expenditure and sales records to establish their tax dues.
Daniel Ngumy, a partner with corporate law firm Anjarwalla & Khanna, said that KRA would rely on existing law to get farmers to pay taxes.
He said section 15(7) of the income tax law allows taxation of income from agricultural proceeds, adding that the law is yet to be enforced due to farmers’ lack of awareness.
“This law has been in existence for the last 10 years,” said Mr Ngumy. The plan comes at a time when the Treasury has widened tax bands and increased personal relief in a review aimed at easing taxpayers’ burden.
Super-salary earners will have a monthly benefit of about Sh600 following the review of income tax bands and the increase in personal relief aimed at easing workers' payment burden.
REVISED TAX BANDS
Tax bands have been increased by 10 per cent and personal relief from the current Sh1,162 to Sh1,278 per month. This is the first review in 12 years.
At the moment, the lowest band starts at Sh10,164 per month while the upper band includes incomes from Sh38,893 per month.
Under the proposed changes, workers will only pay taxes if their income is at least Sh11,181.50 per month, with the upper band falling on incomes above Sh42,782.30 per month.
This means incomes of Sh11,181.50 per month will attract taxes at 10 per cent, the portion beyond the first band will attract taxes at 15 per cent up to Sh21,715 per month.
The share of incomes beyond the second band up to Sh32,249 will be taxed at 20 per cent with the rate rising to 25 per cent on incomes up to Sh42,782.30 per month.
Any portion of income above Sh42,782.30 falls in the upper-most band that will attract the top tax rate of 30 per cent.
The KRA has been missing tax-collection targets and is unlikely to meet the lower revised tax of Sh1.14 trillion. It needs to raise Sh154 billion this month to hit the target.