Tax: It is a tiny little word that packs quite the punch. It feeds the economy and helps the Government pay its bills. Still, most of us have a complicated relationship with taxes. Many employees and entrepreneurs see it doing little more than eating into their hard-earned earnings, while the agency tasked with collecting it never seems to get enough.
But no matter our attitude, like death, getting taxed is inevitable.
And if you’re hoping to grow your business, you have no choice but to get familiar with taxation. Avoiding it keeps your business small, your penalties high and leaves your country struggling.
Available for free
As long as you’re aged 18 and have an income – whether from your own business or from employment – you’re required to register for a Personal Identification Number (PIN).
The number identifies you for the “purposes of transacting business with the Kenya Revenue Authority (KRA), other Government agencies and service providers,” according to KRA.
And unlike it was in the past, you don’t have to queue to get a PIN; it’s available for free on the iTax website.
If you have registered a sole proprietorship, you can use your personal PIN as your business PIN. But if your company is limited, you’ll need to apply for a separate number for the business. This can also be done online.
And as long as you have a PIN, you have to file annual returns. If you’re running a business with a separate PIN, you’ll need to file returns for both yourself and your business.
Being tax-compliant isn’t a luxury these days. If you want your business to grow, you’ll need to transact with other companies and with the Government through its procurement programme for youth, women and persons with disabilities.
To do this, you’ll often need to provide a PIN and tax compliance certificate. KRA generates the latter document for free, but you need to have been filing your returns faithfully.
If you haven’t made any money, you have the option of filing zero returns through iTax.
On the ‘File Returns’ tab on the website, you’ll need to download a returns form. Once you fill in the required details, you’ll get the option to file nil returns. Save the form, and then upload and submit it.
KRA’s current call for people to file annual returns by June 30 regards any income earned between January and December 2016. Once you fill in the details on iTax, you’ll get an email detailing any cash owed to the taxman.
You have a month to pay off any arrears at a bank affiliated to the agency. However, if the fee is beyond your abilities, you can visit a KRA tax centre to negotiate a payment plan, or even a revision of the penalties.
As we inch closer to the deadline for filing annual returns, we take a look at some of the other reasons entrepreneurs and employees should honour the call to be ‘Mkenya Mtrue’.
1. There’s a simpler tax regime
James Ojee, the deputy commissioner in charge of policy at KRA, says the introduction of a turnover tax regime is helping small businesses become tax compliant.
“The regime is supposed to bring simplicity to the taxpayer in the areas of record keeping, filing and payment of taxes,” says Mr Ojee.
New cheaper Uber service jolts drivers
The turnover tax rate is 3 per cent of your turnover every three months if your business’ turnover doesn’t exceed Sh5 million.
Turnover tax, however, doesn’t apply to earnings from rent, management, training or professional fees. Also, if your business is loss-making, you can apply to be exempted from this tax through a written application to the KRA commissioner.
“There are proposed Budget changes to lower the rate to benefit SMEs,” says Ojee.
“Further, under the VAT Act and tax regime, small businesses whose annual turnover is less that Sh5 million are exempted from VAT registration.”
However, businesses that have registered to file VAT returns are required to do so by the 20th of every month. Failure to do this draws a Sh10,000 penalty for each month you don’t file returns.
Fred Mwirigi, the deputy commissioner in charge of academics at the Kenya School of Revenue Administration, adds that KRA has sought to personalise its services to respond to the unique needs of various businesses.
“KRA has established a vast network of stations within and outside our cities and towns, including in far-flung areas like Kenya’s border points,” he says.
“It is thus fairly easy to walk into any KRA station to obtain tax and customs advisory services. Taxpayers can also access KRA services from Huduma Centres.”
KRA eyes landlords to cut tax arrears
2. It matters to your country
Paying taxes is part of being patriotic. It means enabling the Government to offer you the right environment to do business. It is from taxes that you get better roads to move goods to the market, access adequate electricity or enjoy better security.
The coming financial year’s Budget is expected to be about Sh2.6 trillion. More than 65 per cent of this amount will be funded by taxes. Why not participate actively in generating these funds so we can lower our public debt?
According to the Kenya National Bureau of Statistics (KNBS), licensed micro, small and medium enterprises pay a monthly average of Sh33.8 billion in taxes. This is against a rather dismal Sh294 million from unlicensed businesses.
“This is an indication that a considerable portion of income earned by unlicensed establishments is not taxed (despite) the wealth generated by these enterprises,” said KNBS in a report.
KRA estimates that about two million formal employees shoulder the country’s Pay-as-You-Earn (PAYE) burden, despite a thriving informal sector.
3. You can access tenders
Unlike in developed economies, in Kenya, most business opportunities are generated by the Government. Yet, the Government can’t do business with an entity that isn’t tax compliant.
“SMEs, when tax compliant, stand to enjoy acceptability when doing business with other large organisations. They stand to be considered for Government contracts on the strength of their tax compliance,” says Ojee.
Excise tax to boost KRA collection
He adds that SMEs operating as non-profit organisations can be granted income tax exemptions upon application.
4. Gain support for your business
Dr Mwirigi adds that KRA has incentives in place to keep importers and exporters in business. For exporters, KRA helps your company out by minimising the costs of doing business.
“This ensures that your products remain competitive in the international market. For instance KRA does not levy VAT on exports,” says Mwirigi.
“It also has a provision for capital allowances on installed machinery, and a possible 20 per cent export compensation arrangement. There are certainly many other incentives that exporters can benefit from.”
As regards imports, KRA has set up incentives, including reducing taxes on inputs like raw materials and machinery, aimed at encouraging the creation of manufacturing firms.
The agency has technical officers who can help you figure out the incentives that would benefit your import business.
5. It’s all online
Today, unlike in the past, you don’t have to queue to file your taxes – you just need to get online and log into iTax.
“Previously, entrepreneurs had to endure long queues in various KRA banking halls to seek advice on how to file tax returns,” Mwirigi says.
And if the iTax website doesn’t have a response to your query, you can reach the taxman on phone or through social media, especially on Twitter.
“KRA plays many integral facilitative roles to aid the development and growth of enterprises in Kenya. Many enterprises have benefited from these roles, while others, unfortunately, have no idea that they can actually benefit greatly by interfacing with the authority,” says Mwirigi.
Tax laws tend to change every year, with alterations, additions, rebates, zero rating and responsibilities being amended by the Finance Cabinet Secretary. This is aimed at making the taxman more efficient and addressing business concerns to ensures there are no adverse effects on a any one economic sector.
The Government’s role in helping small businesses grow includes coming up with favourable policies and championing initiatives that support MSMEs.
These initiatives include tax incentives, interventions through banks, credit guarantee schemes and other forms of subsidised financing. On their part, to get better policies, small businesses can lobby legislators in Parliament, as well as counties, to amend tax laws in their favour, rather than avoiding the exercise altogether and limiting their own growth in the process.