For starters, taxation is a revenue-generating activity by the governments within certain jurisdictions. Excise duty is levied on goods and services produced within the jurisdictions. Revenue raised is majorly used for financing social-economic activities and development.
Most small businesses get funding through small loans which seem easier to access, but are more expensive than the normal loans. It’s a lucrative business for lenders due to the large number of small businesses it attracts. Many suffer because they already come from a disadvantaged position right from inception into their operations activities. The businesses borrow small loans numerously for day-to-day operation activities from lenders that don’t require collateral but charge for a higher interest rate.
Just when businesses thought they were slowly edging out of the economic slump caused by the COVID-19 pandemic, another shocker weighs in … Kaboom! This is courtesy of the re-introduced excise duty through the Amendment on the 2021 Finance Act at the “August House” and the assent on it by the President. Disquiet is the least that can be said of the feeling by the business community especially the small enterprises. It has caused a myriad of challenges affecting the operation of most types of small businesses. Some of the predicaments afflicting them are;
1. Expensive Loans
It affects the businesses in two ways;
- Start-up Fund
Depending on your perception of what small businesses are, generally, they’re start-ups that don’t require huge asset capital not by wish, but by design because they can’t afford it. A good number of these outfits can afford only small loans which are easily given by the lenders through mobile loan platforms. Such funds easily became an ideal source of
capital because they don’t attract stringent vetting measures and almost zero security as just a couple of confirmed transactions through the account, does it?
But that’s where it stops being rosy as such mobile loans encompass a sizable levy in proportion to the value, through processing and commission fees. The levies are what was targeted by the 20 per cent excise duty as they look attractive. The tax has made loans expensive, less reachable, and unsustainable to a good number of small entrepreneurs who would have used it as a springboard to get them off the blocks.
- Operations Fund
A significant number of small businesses depend on mobile loans to support their day-to-day operation. An economic report by Mr John Mutua (Business Daily) Jul 5, 2021, gives further insight into the increase in mobile loan costs. Some of the small businesses’ dreams have been shattered as they can no longer afford such loans and might as well scale down business activities or close shop altogether.
2. Depressed Growth
Some marketing strategies have been shelved because the cost of loans have gone up. Variables used in marketing and promotion strategies are no longer a priority as businesses avoid loans. The absence of such marketing activities automatically stifles expansion opportunities that could have otherwise been readily affordable to the businesses.
3. High Cost of Running Businesses
The 20 per cent excise duty on the telecommunication establishments pushed up the tariffs making calls more expensive. Other than internal communication on day-to-day business operation activities, the cost for external liaison with clients for information, sales, and relationships has gone up too. Businesses are now forced to pay more to maintain the activities, which eats into their profits
Kenyans’ predicament as call tariffs go up
There had been some hope that the President might decline to assent to the Amendment Act, which didn’t live to see light of the day. The urge to raise more revenue to mitigate the deficit in the budget seems to have taken a centre stage. The business community including lenders has been uncomfortable with the tax because of the expected adverse effect of slowing down the economy. This is because enterprises especially the small businesses who are the most vulnerable are expected to shy off from credit facilities owing to the increase in the cost of loans.