Tax plan

The latest edition of the Paying Taxes report indicates that on average, it takes a company in Kenya 202 hours to comply with its taxes which involves 30 payments ; that’s around 10 days!So if  it seems like you’re spending more and more time each year thinking about and filing taxes, you’re not alone.Not to scare you, but you have just less than 2 weeks to get your taxes filed. Don’t let the tax season leave you filled with anxiety and sleepless nights instead, keep your tax season stress free with these simple steps:

#Know your tax responsibilities for 2017.

Make sure you know which bracket you fall into, your filing requirements and which forms you will need.

In Kenya some of the basic tax compliance requirements according to the income tax laws relating to businesses are:

  •  Keeping of up to date books of account.
  •  Acquiring of Personal Identification Numbers (PIN) (see how to ).
  •  Determining the taxable income according to the stipulated rules and regulation.
  •  Accurate determination of tax liability.Your tax liability is the total amount of tax on your income.
  •  Filing of returns on income by the prescribed date(read more on how to file here ).
  •  Paying of tax dues by the prescribed date, payment of fines and penalties for overdue taxes.
  •  Allowing of audit by tax collectors if deemed necessary.

#Maintain bank statements orderly.

Put all of your statements in date order  in files and double-check to make sure you’re not missing any. Keep these files in a drawer that’s labeled and easily accessible but under lock and key.

If you do the majority of your banking online like through the mpesa or mobile banking platforms review your online statements closely and make sure you have them available for your CPA.A word of advice, if you haven’t done so already for 2017, make a file for this year’s bank statements and take a moment to organize those right now in preparation for 2017 tax filing.You will thank me later.

#Organize receipts and reimbursements.

Ensure all of your receipts from 2016 have been entered and maintained just like the bank statements.

#Calculate business deductions.

Make sure that you’ve crossed your t’s and dotted your i’s to check for the deductions that apply to you and your business. Ensure that you’ve saved any receipts that you need in case of needed clarification.

#Hire CPA or bookkeeper.

Think of your CPA or bookkeeper as a sage in the accounting world. They understand the ins and outs of filing, what’s legal (and what’s illegal), regulations you need to know, deductions you might be missing and more. If you’ve completed your own taxes get  someone to take a look at your paperwork before you finish filing. A second set of eyes is always a good idea.  

As an entrepreneur or business owner there a few things you need to know in tax compliance;

Withholding Tax

 This is tax on any service rendered that is withheld by the person purchasing your service. For example, if you are contracted for a consultancy service, it is the duty of the client to withhold 5% of the amount you charge to pay to the government. If you are expecting a pay of up to Sh23, 999 from a client, the five per cent tax does not apply.

Any payments of services from Sh24, 000 and above attracts a five per cent withholding tax if the service being paid for is a consultancy service. However, for construction, withholding tax attracts a penalty of 3%.

 

As long as you are registered with iTax, any payment that you receive and is registered with iTax, you will automatically receive a withholding certificate on your email.

Installment Tax?

This is very important for all the self-employed and small business owners. The government requires that you pay your taxes in four installments to KRA. On a normal January to December calendar year, the installments should be paid by April 20, June 20, September 20 and December 20.

You can pay 25% of last year’s income and increase by 10%, or you can calculate what your anticipated income will be in the current year and calculate 25% of that income and pay as your installment tax. The tax you are paying is on profits made from your sales.

Value Added Tax (VAT)

Value Added Tax (VAT) is a tax on consumer expenditure.For VAT purposes, goods and services (supplies) are categorized as follows:

• Taxable supplies at standard rate (16%);

• Zero-rated supplies (0%); or

• Exempt goods. VAT is charged on the supply of taxable supplies at the specified rates. The exempt supplies are not subject to VAT and are listed in the First Schedule to the VAT Act. Zero-rated supplies are listed in the Second Schedule to the VAT Act and are taxed at 0%. All other supplies are taxable at the standard rate, which is 16%.

VAT payable is the difference between VAT charged on supply of goods and services (output VAT) and VAT incurred on purchases or imports (input VAT).

VAT PAYABLE =OUTPUT VAT(SALES) – INPUT VAT(PURCHASES)

However there are several restrictions on the deductibility of input VAT in which case it may be expensed or capitalised.

Persons in a VAT-recoverable position arising out of supply of zero-rated supplies are required to lodge a claim within 12 months from the date the tax becomes due and payable.

Withholding VAT has been reintroduced where selected corporate entities, government departments, ministries and parastatals are mandated to withhold VAT at 6% from their suppliers during payment and remit the same to the KRA. They are consequently required to issue withholding VAT certificates to the suppliers.

Now how to do the calculation is easy since technology cane to our rescue the tax man has developed a VAT calculator ( click here to access ).In addition I have attached a screenshot  just for you, take a look!

VAT calculator

Tax planning is legitimate “…. there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. ……… nobody owes any public duty to pay more than the law demands: taxes are enforced extractions, not voluntary contributions”
(Justice Learned Hand, Comm. vs.Newman, 159 F. 2 d 848 [CA-2, 1947]).
 

So if taxes are enforced extractions and not voluntary contributions why are they important?Well truth is,the country is ranked 125 in paying taxes survey from 122 in 2016 according to the World Bank Doing Business 2017 report which shows a decline in ranking .The decline clearly demands a lot of sensitization on tax commitment by the taxpayer.The World Bank’s Ease of Doing Business Index is built on the paying taxes survey which tells countries’ competitiveness as investment destinations.

food for thoughtThe  World Bank’s Ease of Doing Business Index is built on the paying taxes survey which tells countries’ competitiveness as investment destinations.

 

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