In Kenya, the Micro, Small, and Medium Enterprises (MSMEs) are increasingly being recognized as the backbone of the economy, contributing significantly to job creation, innovation, and economic growth.
Despite facing numerous challenges, these enterprises continue to drive
development, particularly in rural and underserved areas, making them
indispensable to Kenya’s vision of becoming a middle-income economy.
According to the Kenya National Bureau of
Statistics (KNBS), MSMEs account for over 80% of employment in the country and
contribute approximately 40% of Kenya’s Gross Domestic Product (GDP).
These
enterprises span various sectors, including agriculture, manufacturing, retail,
and services, providing livelihoods for millions of Kenyans.
One of the most significant contributions of MSMEs
is their role in job creation. With Kenya’s youth unemployment rate hovering
around 35%, MSMEs offer a critical avenue for young people to gain employment
or start their own businesses. In rural areas, small-scale farmers and artisans
rely on these enterprises to sustain their livelihoods, reducing poverty and
improving living standards.
MSMEs are also at the forefront of innovation,
particularly in the technology and creative industries. From mobile-based solutions
to eco-friendly products, these enterprises are leveraging technology to solve
local challenges and tap into new markets. For instance, the rise of fintech
platforms has enabled MSMEs to access credit, manage payments, and reach
customers more efficiently.
Recognizing the importance of MSMEs, the Kenyan
government and private sector have launched several initiatives to support
their growth. Programs such as the Youth Enterprise Development Fund, Women
Enterprise Fund, and Uwezo Fund provide financial assistance and training to
aspiring entrepreneurs.
Additionally, organizations like the Kenya Private Sector Alliance are working to create an enabling environment for MSMEs through policy advocacy and capacity-building programs.
The African Guarantee Fund, a
pan-African financial institution, has also been instrumental in supporting
MSMEs by providing guarantees to financial institutions, enabling them to lend
to small businesses with limited collateral.
While MSMEs are vital to Kenya’s economy, their
tax contribution has historically been low, largely due to informality, tax
compliance challenges, and limited awareness.
The sector remains vocal on its
ambition to have a simplified taxation regime, that does not only mobilize
revenue for the Government but also puts in place tailored compliance support
frameworks and tax incentives within the MSME ecosystem. The move by the
Kenya Revenue Authority to introduce a dedicated Department to serve the Micro
and Small taxpayers is a move in the right direction and indicates the taxman’s
positive reception to calls by the sector for a more dedicate support on
matters taxation.
With the current tax contribution from the MSME
sector still disproportionately low, it is expected that through the new
Department, KRA will be able to put in place simplified processes and realistic
frameworks to mobilize tax revenues for the Government.
Over and above a
simplified taxation regime, KRA must move further and deepen its collaboration
framework with the sector and other key stakeholders with a view to augment
initiatives that build trust, transparency and tax morale.
Additional partnerships will be critical in
providing training and education to MSMEs on tax compliance and the benefits of
formalization, and the adoption of other practical models and digital solutions
to make tax filing and payment more accessible through diverse platforms.
Additionally, the tax policy framework ought to be reconsidered to further
simplify taxation processes relating to the sector.
The MSME sector is geared towards playing a
critical role in boosting the Country’s development agenda and contribute its
equal share of tax revenues to the Government.
The expectation is that the tax
administrative processes become more facilitative for the sector, maintaining
its strategic position as the major employer in the Country and encourage
increased startups while boosting innovation and entrepreneurship.
The Writer is the CEO, Jua Kali
Federation of Kenya/Chairman, COMESA Business Council SMEs Work-Group
