I hope the tax literacy series has been insightful .As promised i will be sharing on the taxman’s accountability as well as shedding light on 2 key pointers that are key in minimizing your tax liability . I’d love to bring these 2 key pointers to your attention ,before diving into the taxman’s accountability conversation.These 2 pointers include ;
Tax amnesty is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability (including interest and penalties) relating to a previous tax period or periods and without fear of criminal prosecution.
The Finance Act 2016 introduced Section 37 B into the Tax Procedures Act, 2015. The section provides for tax amnesty on foreign income earned in any year of income on or before 31 December 2016.
The amnesty covers the principal tax and any associated penalties or interest relating to income earned outside Kenya that would have been taxable under Kenyan tax laws and if it had been accrued or derived in Kenya or deemed to have been accrued or derived in Kenya.
Therefore, the amnesty does not apply to income earned in Kenya.According to the guidelines, the application for amnesty must be submitted online through the iTax platform using form A/37B on or before 31 December 2017.
Tax avoidance the arrangement of one’s financial affairs to minimize tax liability within the law .You can do this by;
Maximizing deductions through good record keeping for example by procuring and accounting for your assets at the end of your financial year you minimize your tax liability because you will still claim the whole amount for that year . But if you account for your assets at beginning of your financial year it will eat up on your income.
Companies whose principal markets are export markets have tax incentives of ;
• A 10-year corporate tax holiday;
• A lower tax-rate of 25% for a 10- year period
after the tax holiday
• Significant capital allowances
Repatriation of profits which can be done through:
• Payment of dividends
• Interest payments
• Management fees & royalties.
Note the difference between tax avoidance and tax evasion is the legal component ; tax evasion is the illegal non-payment or underpayment of tax.Now KRA has a facilitation for tax evaders if you willingly surrender to them and commit to being tax compliant therefore, all is not lost!
Lets get down to facts shall we?Well a total of Sh810.2 billion worth of domestic taxes were collected, which was against the targeted Sh834.3 billion. Additionally, Sh386 billion worth of customs were collected and in total KRA collected sh1.2 trillion revenue in 2015/2016 financial year.Yes you heard me right, sh1.2 trillion !A target of Ksh1.18 billion has been set for the current financial year.
Question is, where does all this money go to? Truth is the mandate of KRA is to collect taxes while for the government is on the expenditure part of the equation.But that is not enough the taxman still has a responsibility to ensure them and the government speak the same language which is proper accountability of taxes .Well purportedly taxes finance the budget which was just read last month.
Owing to the upcoming elections, the Cabinet Secretary for National Treasury, presented Kenya’s budget of KES 2.6 Trillion on 30 March 2017. As has become the trend year after year, it was the largest ever budget, yet. As is normal with an election budget, the CS introduced minimal tax increases despite the government’s ambitious revenue target of over KES 1.7 Trillion for the 2017/18 fiscal year. However, the government plans to borrow more than KES 800 Billion!
Allow me to break it down for you on what goes where into four main key pillars which are referred to as pro-poor sectors ;
• Free primary health care: no change in the Ksh 900 million allocations from the
previous two financial years.
• Health insurance for the elderly and persons with disabilities: Ksh 300 million is
allocated, which is lower than the Health Sector Working Group’s recommendation of
Ksh 500 million.
• Free maternal health care: no change in the Ksh 4.3 billion allocations as two
previous financial years. The conditional grant (now special grant) of Ksh 3.4 billion
has been reduced by Ksh 900 million, compared to 2016/17.
• Free primary school education: of the total Ksh 21.8 billion allocated for primary
education, 87.5% is earmarked for free primary education – more than the share in
total primary education budget in 2016/17.
• Free day secondary school education: a total of total of Ksh 34.7 billion allocated, of
which only 3.8% (Ksh 1.3 billion) is earmarked as capital expenditure while the rest is
• School feeding programme: receives an allocation of Ksh 2.5 billion, which also
includes resources from donors. This is less than the Ksh 4.5 billion amount
An important deal breaker is that in Turkana County, for example,
an individual is 15 times less likely to have access to a secondary education, compared
to an individual in Nairobi County yet Turkana received 15BN for the 2016/2017 financial year while previuosly in the 2015 budget Nairobi and Turkana counties got the biggest shares of Sh12.7 billion and Sh10.2 billion respectively.
• Ksh 24.2 billion (2% of overall 2017/18 budget) is earmarked for social protection
programmes, a 6% increase from the previous financial year.
• National Safety Net Programme will receive Ksh 20 billion for state cash transfers to
more than 1 million households with older persons, orphans, vulnerable children and
persons with disabilities.
• National Development Fund for persons with disabilities: the fund will be allocated
Ksh 400 million – higher than 2016/17 by Ksh 100 million. This is 54% more than
what the Medium Term Expenditure Framework recommended for 2017/18.
In February 2017, the government declared the current drought as a national emergency.
• Ksh 5.1 billion (three-quarters of the State Department for Special Programmes
budget) is earmarked for drought management in 2017/18.
If we just evaluated from the figures above it seems there is our value for money . The collection of taxes will only make sense if the end product is sustainable for its citizens.It is worth noting that there are over 39,000 direct tax cases pending with various authorities .With the recent hacking of the KRA with millions of taxpayers money smuggled it is clear that the there’s a need for institutional reform of tax administration .The taxman needs to be intentional and very deliberate in handling our money.