UNDERSTANDING TAXATION AND HOW TO REMAIN COMPLIANT
The holy book says “Give unto Ceaser what is Ceaser’s…” while society says there are only two guarantees in life, death, and taxes; however even with divine ordination and societal expectation, very few of us understand taxes, and even fewer pay them. As a businessperson, it is imperative you understand taxes; you understand which apply to you, those that you are exempt from, and the consequences for not meeting your tax obligations.
What are Taxes?
Taxes are a compulsory financial charge or some other type of levy imposed on a taxpayer by a government to fund government spending and various public expenditures. Taxes thus are representative of the capital and operational expenditure for the country you live in and they go towards ensuring infrastructure, security, public services and other social and business enablers are functional.
In this regard, and as benefactors of collective taxes paid, every business must be deliberate in paying their taxes as part contribution to the betterment of the society they live in. For this to happen thus it is imperative for you to understand your country’s tax system and what bracket you as an individual and or business fall under.
Under Kenyan law, business taxes are applicable under the nature of your business and the amount your business is making. Our tax regime is also founded under the premise that it has to be fair and equitable and thus certain exceptions are provided for different scenarios.
Of the many taxes levied on Kenyans, the critical one to be aware of is income tax; filed annually and takes into account the income you have made over a calendar year. For companies, this is known as operation tax. Secondly, there is Value Added Tax (VAT), a tax levied on vatable goods and services.
Unlike income tax, VAT is due by the 20th of each month and it is remitted based on your VAT input and output around your businesses. This means your VAT is calculated based on the amount of VAT you pay on your purchases against the VAT you collect from your sales and the difference is what you submit to the government.
Critical for every businessperson is in knowing what is vatable and what is exemptable. Certain public interest goods and services fall under the exempt bracket including agricultural products in raw form, medicaments, public transport, and funeral and medical services among many others are VAT exempt, however, things like software attract VAT.
Depending on your income level, the Kenya government charges turnover tax for incomes between Ksh. 1 million – 50 million and individuals within this bracket are given the option to register for and pay 1% of their gross income/sales and this exempts them from claiming any expenses.
Landlords to have been brought into the tax bracket through Monthly Rental Income Tax (MRI) that demands 10% tax from any rental income above Ksh. 24,000. Further with the transition into digital and online work, the government has also instituted a Digital Service Tax to collect taxes from online work.
Through the collection regime, there are exceptions and exclusions from taxation and these have also been arrived at from a point of fairness and equity. Among the excluded or favoured are People Living With Disabilities (PWD) who enjoy a range of benefits including tax-free vehicle importation for their personal use and the first Ksh. 150,000 of their income is tax-free. NGOs also fall under the tax exemption categories for things like income tax as long as they can prove and are subject to application and verification that their work goes to support government initiatives.
Registering as a taxpayer
That your tax obligations are mandatory, as an individual and or a business you must register as a taxpayer. Individuals register themselves through the acquisition of a Personal Identification Number (PIN) and in some instances where you are running your business as a sole proprietor; you can also use your PIN for your business. However, you are encouraged to register your business and get a PIN for it.
Registering as a taxpayer is one thing, ensuring you are in the right bracket is the next step and this can be done in your nearest tax office. After this, you will also need to file your taxes, and many mistake filing at the end of the process; however, once you file you then need to pay your taxes. These assumptions and omissions represent the bulk of mistakes many taxpayers make and eventually end up in arrears.
Being in charge of this and being tax compliant not only keeps you in the good books with the government but also allows for your business to participate in government and private tenders that demand tax compliance as one of the pre-qualification conditions. Separately penalties levied by the government on tax arrears can be punitive and detrimental to your business and thus we encourage every businessperson to understand and comply with their tax obligations.
Should you wish to grasp the significance of taxes for both your personal life and business endeavours, we are fully prepared to offer our assistance. At Springboard Capital, we are good social citizens who understand the importance of taxes and are thus committed to paying our taxes. Further, we are open to engaging with the Kenya Revenue Authority(KRA) to ensure their tax experts meet and share with our customers; highlighting the processes, caveats, and solutions to challenges they may be facing. We understand that taxes are not as daunting as many of us think and we help you and your business view them in good light.
Moreover, we provide a range of loan products, including Business Loans, Emergency Loans, Asset Financing, Salaried Loans, Loans against Logbooks, Import Duty Financing, and Title Deed Loans. These offerings aim to support the growth and management of all your operations. Get in touch with us today at 0700 944 444, use the WhatsApp button below, or email us at info@springboardcapital.co.ke.
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Article based on Corazon Aquino Webinar Presentation – Corazon is a Policy Communicator Team player with 14 years of experience in advocating for tax laws acceptance. With excellent communication and interpersonal skills, she possesses the ability to appreciate team players with diverse personalities. This skill allows her to harness their unique strengths and address their weaknesses, effectively guiding each team member towards the accomplishment of shared goals.
Passionate in all her endeavours, Corazon is driven to plan, strategize, and think creatively. Her persistence and adaptability enable her to overcome any obstacles or challenges that may arise while pursuing set objectives. Guided by key values of integrity, honesty, teamwork, and self-efficacy, Corazon consistently upholds a strong work ethic and strives for excellence in all aspects of her professional life.
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