Street hawkers are taxpayers contributing to Kenya’s tax revenue. Think about the vibrant streets of Nairobi, the bustling markets, and that persistent entrepreneur offering everything from phone accessories to the latest fashion. These are our street hawkers, taxpayers, and an integral part of Kenya’s economic landscape.
Often, people perceive them as being outside the formal tax system. But they are, in fact, significant contributors to the nation’s coffers in more ways than you might imagine. Let us pull back the curtain and explore the surprising ways street hawkers act as unsung taxpayers and why supporting them is crucial for Kenya’s economic health.
The Multi-Layered Tax Contribution of Street Hawkers
While a street hawker might not be filing corporate tax returns, their activities are intrinsically linked to various forms of taxation. The goods they sell, often imported, have already passed through several tax gates.
Most goods sold by street hawkers, from clothing and electronics to household items, are imported. These imports are subject to customs duties at the point of entry into Kenya. Importers, who supply these goods to the hawkers, factor these costs into their pricing.
So, when a hawker buys any merchandise, they are indirectly contributing to the tax revenue collected through customs. Think about the popular mitumba (second-hand clothes) trade, a significant source of income for many hawkers. The government has already imposed a tax on every bale of imported clothes.
b. Value Added Tax
Value Added Tax (VAT) is a consumption tax levied at each stage of the supply chain. While street hawkers may not directly charge VAT on their sales (because of operating below the VAT registration threshold), the goods they purchase from wholesalers and importers already have VAT applied at earlier stages.
This embedded VAT is ultimately paid by the end consumer, including the street hawker themselves, when they buy their stock. Consider that trendy pair of sunglasses a hawker is selling on the streets; the importer paid VAT, and the wholesaler likely did too. This cost is embedded in the price the hawker paid.
c. Excise Duty
Certain imported goods, like beverages, tobacco products, and some electronics, are subject to excise duty. If a street hawker sells these items, they have indirectly contributed to this tax when they purchased their stock. While less prevalent than customs and VAT in the typical hawker’s inventory, it is still a factor for those dealing in specific goods.
d. Income Tax (Indirectly)
While many street hawkers operate informally and might not be directly assessed for personal income tax, their earnings contribute to the overall economic activity. Their spending on food, housing, transport, and other necessities injects money into the formal economy.
In the formal economy, businesses and individuals pay income tax. Furthermore, as the government formalizes the sector (more on that later), direct income tax contributions from street hawkers will become a reality.
Example:
Look at the booming trade in phone accessories in Nairobi. Many young Kenyans are street hawkers selling chargers, earphones, and phone cases, most of which are imported from Asia. Each of these items has been subjected to customs duties and VAT, contributing to the KRA’s revenue even before the hawker makes a single sale.
The Economic Fallout: What Happens When Street Hawkers Are Neglected?
Street hawkers are essential for Kenya’s economy. Ignoring or hindering their progress has significant negative repercussions.
a. Lost Tax Revenue
By remaining largely informal, a significant portion of the economic activity generated by street hawkers remains outside the formal tax net. While they contribute indirectly, formalisation would unlock a substantial additional stream of direct tax revenue for the government, which could be used to fund essential public services.
b. Suppressed Economic Growth
When street hawkers are operating in precarious conditions with limited access to resources, their growth potential is stifled. Supporting their formalization and providing access to finance and training can unleash their entrepreneurial spirit and contribute to overall economic expansion and job creation.
c. Increased Informality and Illicit Trade
Harassment and a lack of support can push street hawkers further into the informal economy. This will make it harder to track economic activity. It could also increase engagement in illicit trade. This will undermine fair competition and further reduce government revenue.
d. Social Instability
The livelihoods of a significant portion of Kenya’s urban population depend on income from street hawking. Neglecting this sector can lead to increased poverty, social unrest, and crime. This will place a significant burden on social services and security resources.
d. Missed Opportunities for Data and Planning
Formalising the street hawker sector would provide valuable data on their economic activities. The government can use this data for better economic planning, resource allocation, and targeted support programs. Without this data, policymaking is often based on incomplete information.
Example:
The constant clashes between street hawkers and city council askaris in Nairobi show the economic and social costs of neglecting this sector. These disruptions lead to loss of income for the hawkers, damage to goods, and a generally unstable trading environment. Thus, the disruptions hinder their ability to contribute meaningfully to the economy.
The Untapped Potential: What the Government Can Do to Help
Despite their silent contributions, street hawkers often face harassment, lack of access to credit, and insecure operating environments. By providing support and fostering formalization, the government can unlock even greater tax revenue and economic growth.
How can the government help?
a. Formalization and Simplified Tax Regimes
The county can implement simplified tax systems designed explicitly for small-scale traders, including street hawkers, to bring them into the formal tax net. This will not overwhelm them with complex procedures. This could involve a presumptive tax (currently suspended) based on turnover or a small flat fee.
Kenya has made strides in simplifying tax compliance with initiatives such as the Turnover Tax (TOT). Further simplification and outreach are needed to include more people in the net, such as the street hawkers. With current advancements in technology, it is possible to create a tax system tailored to the specific circumstances of street hawkers.
b. Access to Training and Business Development Support
Although street hawkers conduct business, many lack even basic business training. Providing business training on essential skills such as basic bookkeeping, financial management, and other business fundamentals can help street hawkers grow their businesses.
They will also understand their tax obligations. This will empower them to transition from informal to formal operations. Organizations like the Micro and Small Enterprises Authority (MSEA) can play a crucial role in building business capacity in this sector.
c. Designated Trading Zones and Infrastructure
Street hawkers are businesspeople with no fixed abode. The government can work with the County government to allocate designated and secure trading areas. Provision of basic amenities like sanitation and storage can also improve the working conditions for street hawkers.
It will also make it easier for the tax commissioner to engage with them. This will reduce the constant cat-and-mouse games with city authorities. It will also create a more organized environment.
d. Access to Affordable Credit
Many street hawkers lack the funds to finance their businesses. They use either the little finances they have or borrow. This lack of access to finance is a significant constraint for street hawkers looking to expand their businesses and purchase larger quantities of goods through formal channels.
The government can facilitate access to microloans and other forms of affordable credit. This is primarily through government-backed schemes. The loans can also be obtained through partnerships with financial institutions. The intervention by the government can empower the growth of the sector.
e. Streamlined Licensing and Permits
Every street hawker should be licensed. However, the current process for obtaining trading licenses can be cumbersome and expensive. The street hawkers are often pushed to operate without permits. Simplifying the procedures and reducing the associated costs can encourage formalization and compliance.
f. Public Awareness and Education
Some people do not understand that street hawkers are business people just like people with formal businesses. There is a need for public awareness. Conducting public awareness campaigns to inform the general public about the economic contributions of hawkers can foster a more supportive environment. In addition, the government should educate the street hawkers about the benefits of formalising their businesses and tax compliance.
g. Dialogue and Inclusion
Many street hawkers feel excluded from the system, yet they are required to comply with the various dictates. There is a need for inclusion. This can be achieved by establishing regular dialogues between government bodies and street hawker representatives. This can help in understanding the street hawker’s challenges and tailor policies and support programs to their specific needs.
Final Thoughts
After reading this article, you may wonder whether the Kenyan government should recognise and empower the street hawker taxpayers. Street hawkers in the country are far more than just roadside vendors. They are dynamic entrepreneurs making silent but significant contributions to the nation’s tax revenue. They do this through consumption taxes and fuelling economic activity.
The government can adopt policies that support its formalisation, provide access to resources, and create a more enabling environment. This can unlock their full potential as taxpayers and drivers of economic growth. Where does the government start?
Recognizing the street hawkers’ multifaceted contributions to the economy is the first step. This will empower this vital sector and build a more inclusive and prosperous country. Let us move beyond the hustle and see street hawkers for who they truly are. They are valuable contributors to our nation’s financial well-being.
