Taxes you should be aware of before starting a business

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If you are considering starting a business in Kenya, the first thing you need to understand is what the government needs to farm yourself with all the legal expectations.

Kenya is known for its strict regulations and taxes that have prevented some small businesses from becoming profitable years after they started. This may be based on a person’s inability to understand what to pay to the government when the time comes.

Experts say it all depends on the kind of business you want to start and the direction of that business will dictate the kind of taxes you are exposed to and how they will directly affect your business.

Sammy Aloyo, tax advisor during a podcast interview on August 3, 2022.

“If you have a side job and you are exposed to this income for tax purposes, you are advised to form an entity. An independent entity that is independent of opinion and your employment so that you file tax returns at the end of the period called PAYE as an individual,” said Sammy Aloyo, who spoke with office hours.

If you are an individual and run a business and fail to pay the tax, you are personally liable for failure to pay. If you have other people on board and have taken out a loan to run the business, the director of the company is liable for failing to pay taxes as a company and not as an individual.

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According to Aloyo, there are two types of taxes with which one should farm; direct taxes and statutory (indirect taxes.)

Under the banner of direct taxes are the generally known deductions such as excise duties, customs duties and levies and Value Added Tax (VAT).

On the other hand, there is the statutory tax. This is the tax levied by law on taxable income that falls within a certain tax bracket. They include PAYE, corporate tax, customs and excise and withholding tax.

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PAYE

PAYE is one of several statutory taxes collected in Kenya from individuals who are in paid employment. On the basis of this, the employers withhold a certain percentage from the salary.

customs duties

Think of import duties such as excise duties, VAT, import levies and railway development levy. Customs duties are charged to the importer of the goods at the time of import. The importers are required to accurately calculate and pay the taxes based on the applicable duties.

In general, when goods are imported, VAT, import duties, excise duties, import duties, railway development costs, raw materials, semi-finished products and finished goods are applied.

Withholding tax

This is one of the many taxes in Kenya and is levied on interest, dividends, pensions, performance fees, royalties, commissions and so on. However, the rates of the taxes collected are not fixed. They vary depending on the status of the payer. That is whether he/she is a resident or not.

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Corporation tax

Under this tax, companies operating in the country pay a levy on their total income to the government. Indigenous companies are required to pay 30 percent change, while branches of non-resident companies are charged 37.5 percent of their taxable profits.

In 2020, the government introduced sales tax (TOT) for small businesses that want to operate in the country. TOT is basically a tax levied on the gross sales of a company according to Sec. 12(c) of the Income Tax Act.

TOT is payable by resident persons whose gross turnover from business exceeds Ksh1,000,000 and does not exceed or is not expected to exceed Ksh50,000,000 in any given year.

A file from the National Treasury

The National Treasury offices on Harambee Avenue, Nairobi

File

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