Security association wants State to review taxes levied on guarding industry

Friday, November 29th, 2019 19:43 |
Protective Security Industry Association (PSIA) chairman, Cosmas Mutava

The cost of doing business in the country is bearing a heavy burden on the security guarding services in the country.

As a result the members and companies in the country’s security industry under the Protective Security Industry Association (PSIA) wants the Kenya Private Sector Alliance (KEPSA) to lobby the government to understand the challenges it is facing.

Despite being a labour intensive service, the guarding service providers feel that the unnecessary taxes are increasing the cost of doing business in Kenya, and by extension affecting the guarding services.

“The current challenges facing the security guarding services are the high cost of doing the business,” PSIA chairman, Cosmas Mutava has said.

He said the guarding companies pay the wages and 16 percent Value Added Tax (VAT) while waiting for the payment. 

“Some customers pay after 30, 45, 60, 90, some even after 120 days. Some still terminate the order without making payment. Despite all this the Kenya Revenue Authority (KRA) expects payment of VAT from the date the invoice is raised,” he added. 

On this matter, the guarding industry according to Mutava wants VAT only paid to KRA when the Client has made the payment to the security company.

“We should only pay tax after we are paid by the client. We can’t pay what we don’t have,” he said.

In a document perused by the People Daily, it found out that the VAT is levied on the total  income by security firms, yet 80 percent of the service charge from the client is indeed the salary of the security guard and other staff.

“This makes tax be real punitive to the security firms, and the VAT should not be charged on the gross amount paid by the client, but, instead after salary deduction - net not gross amount - since employees will still pay the Pay As You Earn and this is double taxation,” he said. 

Mutava suggested that Kenya should borrow a leaf from the Philippines, particularly Curzon City, where the VAT is charged on the difference between the value less the labour cost.

“But in the case of Kenya, the scenario on 20 percent of the invoice, that will bring the VAT amount for guarding services to 3.2 percent VAT on the bill; it will not discourage private consumers from utilising professional guarding services,” he added.

Just like banks, schools, Mutava said Kenya should be allowed not to pay VAT rather pay corporate taxes. The current system, he said makes security firms charge VAT on the guards’ salary, thus, extending the same to the client. He likened this to taking an employee salary by force by charging VAT. 

He said the industry is available to discuss these challenges with KEPSA.

He outlined some of those taxes as tax on security equipment, where security equipment brought into the country attracts VAT at 16 percent; high costs of doing business emanating from County Government by-laws and Private Security Regulatory Authority (PSRA) General Regulations 2019.

Mutava called for zero rating and tax exempting security equipment like Walk-Through-Metal-Detectors, among others, to make the country more secure as assist the fight against terrorism, and also have a serious look at the licensing regime in the country. 

“There are too many licenses in place, such as the City County licenses, the National Environment Management Authority (NEMA) licenses, the National Construction Authority (NCA) license for installation works among others. These ones increase the costs of doing business,” he added.

The Private Security Regulatory Authority has recommended annual licensing of up to Sh 2 million for each security company.

The other taxes include, the Housing Tax: Minimum Wage Increment, Agency Notices Freezing Bank Accounts, and Withholding Tax.

For instance, the 5 percent withholding tax on security services, Mutava said will doom the security providers, as this will reduce the operations margin down from 9 percent to 4 percent. 

He said that any institution that has withheld VAT and have not remitted to KRA is making security firms pay double tax and thus be withheld on invoice month. 

“If a client withhold vat at 6 percent and fail to pay that particular month, security firms are forced to pay entire 16 percent yet the client haven't paid their obligation of 6 percent,” he said.

On May 1, 2018, the Cabinet Secretary for Treasury increased the minimal wages for day and night guards, while the workers and employers in the security guarding industry are not considered.

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