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It replaced the sales levy with a presumptive tax at the rate of 15 percent of the single business permit fee issued by county governments when renewing their permits.

The tax allowed KRA to gather additional data on small traders, setting the stage for the return of the turnover tax.

The informal sector, popularly known as Jua Kali, is deemed to have limited contact with the taxation system save for indirect consumption levies and Mr Kenyatta’s administration is banking on the turnover and presumptive taxes to plug the revenue loopholes.

KRA says the presumptive tax will remain an advance tax that will be deducted against the turnover tax.

Maurice Oray, the deputy commissioner for corporate policy at KRA, defended the decision to retain the presumptive tax alongside the turnover tax.

He argued that the presumptive tax would be key in collecting data on small traders who largely operate informally for the purposes of enforcing the three percent-monthly turnover tax.

“The key thing is to recruit as many taxpayers as possible within that bracket, which has remained largely untaxed,” Mr Oray had said earlier.

KRA’s analysis ahead of introduction of presumptive tax in 2018 indicated that some 1.56 million taxpayers with single business permits had not registered under the turnover tax regime.

The micro- and small-sized businesses remain the backbone of the Kenyan economy and the largest contributor of new jobs despite largely operating in informal settings.

For instance, the informal sector accounted for 762,200, or 90.67 percent, of the 840,600 new jobs created in 2018, the Economic Survey 2019 shows.

But the small traders have suffered from the modest economic activity that has cut cash flow and hit business sales.

Kenya’s economy expanded more slowly year-on-year in the third quarter of this year than in the same period in 2018 as activity proved lacklustre in various sectors including manufacturing and agriculture—which accounts for a third of economic output.

Corporate Kenya has witnessed reduced profitability that has ushered in job cuts, freezes in hiring and near stagnant wages in the race to protect profit margins.

The national and county governments have also delayed payments estimated at more than Sh100 billion owed to suppliers, forcing some to cut back operations, shed jobs or face auctioneers after failing to service their bank loans.

As a result, the amount of cash in Kenyans’ pockets has d

opped to a four and half-year low with Central Bank of Kenya (CBK) data showing that money circulating outside banks dropped to Sh176.9 billion in October — the lowest since July 2015.

The effects of this has been below target collection of payroll taxes — levied on workers’ monthly pay— and which account for nearly half of KRA collections.

Corporate taxes, which come from business profits, have also been hit in an environment where a record number of firms listed on the Nairobi Securities Exchange are issuing profit warnings.

This has forced a cutback on KRA’s tax collection target for the year ending June to Sh1.7 trillion from the initial Sh1.81 trillion.

Collections from small traders are part of the new tax measures that are expected to boost collections and help the taxman hit the revised target.