East African countries have started to broaden the revenue net in order to revisit an old problem: how to tax the informal economy. A report by Bloomberg states that the informal sector contributes around 55% to sub-Saharan Africa’s GDP, yet it doesn’t pay taxes. This, however, will soon change as the region’s governments plan to reintroduce a tried-and-tested tool to collect revenue from hard-to-tax parts of the economy.
Kenya is one of the nations that aims to do so. With its aptly named presumptive tax collection method, it will impose an advance levy on businesses operating informally and without proper documentation. For example, until the 1990s, farmers paid taxes before selling their produce at a market. AFKInsider reports that farmers would therefore revert to the old system of surrendering a fraction of their anticipated sales to an appointed agent.
