HK how do we formalized Informal sector

[Higgins the genius]

• Tweet

[RV Pundit]

Demonitize. Go cashless. Go digital. And it won't matter whether you're formal or informal -  gov will be able to see all the money and tax it. We leading worldwide in digital banking and we can go fully digitally if we wanted - m-pesa is widely accepted now as form of payments - we just need to make it hard to trade in cash - by removing the big denomination. I think max currency can go as low as 100shs. That will force everyone to have m-pesa and bank account.

India mondi recently did this - they banned big denomination - and impact - tax collection was huge.income tax collection two years before demonetisation was 6.6% and 9%, and two years post-Demonetisation it has increased to 15% and 18%.This has led to a record 80% increase in the number of income taxpayers, as 9.1 million new taxpayers were added

[hk]

And if you remove civil servants and parastatals employees the number is quite low. The key is incentives, respect of property and business rights and reduce punitive taxes. There's no added incentive for informal business to go formal. Actually its punitive to go formal since cost of labour goes up and business have to pay punitive taxes. The downside of this is that informal entities don't get access to funding as they could if formal. A perfect example is landlord tax rate. Before a flat tax of 10% of gross was introduced, KRA wasn't collecting much due to low compliance and deductions. Now KRA is collecting more than 50% more after introducing a flat tax rate of 10% gross which isn't punitive.

[hk]

Demonitize. Go cashless. Go digital. And it won't matter whether you're formal or informal -  gov will be able to see all the money and tax it. We leading worldwide in digital banking and we can go fully digitally if we wanted - m-pesa is widely accepted now as form of payments - we just need to make it hard to trade in cash - by removing the big denomination. I think max currency can go as low as 100shs. That will force everyone to have m-pesa and bank account.

India mondi recently did this - they banned big denomination - and impact - tax collection was huge.income tax collection two years before demonetisation was 6.6% and 9%, and two years post-Demonetisation it has increased to 15% and 18%.This has led to a record 80% increase in the number of income taxpayers, as 9.1 million new taxpayers were added

Actually in India increased taxes collection is cause of both demonetization and gst. Most likely the biggest contributor is GST.

[RV Pundit]

What deal about GST.

Actually in India increased taxes collection is cause of both demonetization and gst. Most likely the biggest contributor is GST.

[RV Pundit]

How about making it illegal to be informal? Will take work. Basically the gov will require everyone to register - as business or labourer - . Bazungu had hut tax - that forced people to go work on mzungu farm to be able to pay it.

And if you remove civil servants and parastatals employees the number is quite low. The key is incentives, respect of property and business rights and reduce punitive taxes. There's no added incentive for informal business to go formal. Actually its punitive to go formal since cost of labour goes up and business have to pay punitive taxes. The downside of this is that informal entities don't get access to funding as they could if formal. A perfect example is landlord tax rate. Before a flat tax of 10% of gross was introduced, KRA wasn't collecting much due to low compliance and deductions. Now KRA is collecting more than 50% more after introducing a flat tax rate of 10% gross which isn't punitive.

[Georgesoros]

And if you remove civil servants and parastatals employees the number is quite low. The key is incentives, respect of property and business rights and reduce punitive taxes. There's no added incentive for informal business to go formal. Actually its punitive to go formal since cost of labour goes up and business have to pay punitive taxes. The downside of this is that informal entities don't get access to funding as they could if formal. A perfect example is landlord tax rate. Before a flat tax of 10% of gross was introduced, KRA wasn't collecting much due to low compliance and deductions. Now KRA is collecting more than 50% more after introducing a flat tax rate of 10% gross which isn't punitive.

Explain Punitive??
If I were a LL, do i pay 10% gross or net?
What about the months when tenant goes mteja?

[hk]

Explain Punitive??
If I were a LL, do i pay 10% gross or net?
What about the months when tenant goes mteja?

Just as stated above 10% is for gross . Gross means amount received. As a landlord you may have vacant flats or delinquent tenants, gross means amount received. 

[Nefertiti]

Yup go full digital, including mama mboga and matatus, and tools like AI. The US IRS sniffs out 99% of defaulters using big data. Say if you get a salary, stock dividend, rental income, gift from diaspora sibling, etc. With AI all your details are known and summarized by the taxman pronto. No where to hide unless you go Cayman which only a few fat cats will do.

KRA I think needs tech help from likes of UK. No need to be proud, they can get quick returns if they go outside the box. It's a low hanging fruit GoK should squeeze KRA hard to implement. Njiraini is just lazy and praised for nothing. We have no trade secrets here... it's up and up.

[Nefertiti]

Explain Punitive??
If I were a LL, do i pay 10% gross or net?
What about the months when tenant goes mteja?

Just as stated above 10% is for gross . Gross means amount received. As a landlord you may have vacant flats or delinquent tenants, gross means amount received.

People don't cheat because the rate is high. They cheat because they can't be caught. KRA simply has no way to know what I sent my cousin via Paypal or even M-Pesa. How much I earned from my SACCO investment. How much I have in the bank and where from. Tech should do the trick.

[hk]

People don't cheat because the rate is high. They cheat because they can't be caught. KRA simply has no way to know what I sent my cousin via Paypal or even M-Pesa. How much I earned from my SACCO investment. How much I have in the bank and where from. Tech should do the trick.

Its the combination of both. There's empirical evidence to show that lower taxe rates increases compliance. Yes KRA should use all the technological tools available to tax all incomes.You may send money to your cousin using paypal but if the rate is high your cousin will just claim it as gift which is tax free. There'll be all manner of deductions to offset actual revenue collection.  So basically simple and lower rate works the best.

[hk]

What deal about GST.

Actually in India increased taxes collection is cause of both demonetization and gst. Most likely the biggest contributor is GST.

Here is GST https://www.bloomberg.com/news/articles/2017-06-20/bribes-borders-and-middlemen-why-india-s-gst-is-a-game-changer.

[vooke]

Explain Punitive??
If I were a LL, do i pay 10% gross or net?
What about the months when tenant goes mteja?

Just as stated above 10% is for gross . Gross means amount received. As a landlord you may have vacant flats or delinquent tenants, gross means amount received.

People don't cheat because the rate is high. They cheat because they can't be caught. KRA simply has no way to know what I sent my cousin via Paypal or even M-Pesa. How much I earned from my SACCO investment. How much I have in the bank and where from. Tech should do the trick.

Why did you omit the iPhone X you sent me?

[RV Pundit]

Njirain want them to buy advance tax equivalent to their business license fee.
https://www.the-star.co.ke/news/2018/09/05/kra-to-go-after-small-scale-traders-starting-january-1_c1813467

[Georgesoros]

Explain Punitive??
If I were a LL, do i pay 10% gross or net?
What about the months when tenant goes mteja?

Just as stated above 10% is for gross . Gross means amount received. As a landlord you may have vacant flats or delinquent tenants, gross means amount received.

People don't cheat because the rate is high. They cheat because they can't be caught. KRA simply has no way to know what I sent my cousin via Paypal or even M-Pesa. How much I earned from my SACCO investment. How much I have in the bank and where from. Tech should do the trick.

What?
Wait a minute!
You mean the money I sent for my mum's upkeep is supposed to be taxable???