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Financial Reporting for Saccos Tax Planning
& Management
Financial Reporting for Saccos Tax Planning
& Management
Julius MwatuCFO – Indigo Telecom,
Member – Taxation Workgroup
Our Menu Today
TAX MANAGEMENT
Tax Planning
Tax Crimes
Tax Risks – Auditors
Rights & Obligations
TAX MANAGEMENT
Tax Planning
Tax Crimes
Tax Risks – Auditors
Rights & Obligations
TAX COMPLIANCE
Business tax
Withholding Tax
Personal Tax
VAT
EAC & Saccos
TAX COMPLIANCE
Business tax
Withholding Tax
Personal Tax
VAT
EAC & Saccos
Taxation in KenyaTax
Direct Taxes Indirect Taxes
Income Taxes
Personal Taxation
VAT
Customs & Excise Duties
Withholding Tax
Business Taxation
How does this structure How does this structure affect you?affect you?
How does this structure How does this structure affect you?affect you?
Do you understand the tax structure?
Tax…
Tax…
It’s a BIG risk!
Personal TaxationPersonal Taxation
Are Management
committee members
employees or consultants?
What is taxable?
All income of a person which accrued in or was derived from Kenya
Applies to both resident or non-resident persons
It could be cash or/and non-cash
The tax year for individuals runs from 1 January to 31 December
Withholding Tax
Withholding Tax
Withholding tax
Withholding tax is deductible upon payment of a taxable amount.
Tax point …“Payment” is deemed to include the date of accrual/ crediting of the amount payable.
Whose responsibility?
Dividends
Dividends could be cash, stock, redeemable preference shares, debentures, or payments during winding up
Classified as exempt, qualifying or non-qualifying
Qualifying – WHT is final, non-qualifying – WHT not final
Rates – 5% (Residents); 10% (Non-residents)
Exempt dividends – Paid to exempt persons listed on 1st Schedule or those received by a resident co. controlling >12.5% - S7(2)
Non-qualifying dividends – Paid by a designated co-op society (Taxed under section 19A) - S2
Qualifying dividends – All the others
Exemptions
Withholding tax is not deductible on payments to exempt persons who are in possession of a tax exemption certificate
Examples of exempt persons - POSB – Interest on savings accounts - Local Authority- Registered pension/provident schemes- EA Dev Bank- NSSF
Interest
Classified as:- Exempt - 1st Schedule- Qualifying – Interest received by individuals from
bank or fin inst., housing bonds [max: 300,000/-, CBK) or
- Non-qualifying - all the rest
Qualifying – WHT is final, non-qualifying – WHT not final
Rates – 15% (Bank interest and other sources); 25% (on bearer instruments)
WHT Rates
Nature of payment Resident Non
Resident
Management or professional fees:- consultancy, managerial, technical, agency
fees
5% 20%
Royalties- payment for use of or right to use a copyright patent,
trademark, design, formula……
5% 20%
Contractual fees - building, civil and engineering works
3% 20%
Lease rentals - equipment 0% 15%Lease rentals – Immovable property 0% 30%Pension & provident fund withdrawals 10-
30%5%
Double Tax Agreements
Nature of payment UK Germany &
Canada
Denmark Norway Sweden Zambia
India EAC
% % % % %
Management or professional fees
12 ½ 15 20 17 ½ 20
Royalties 15 15 20 20 20
Consultancy fees to individuals
12 ½ 15 20 17 ½ 15
Penalties
10% penalty (subject to a maximum of KShs 1 million) for failure to withhold or remit tax to KRA
Interest charged at 2% per month or part thereof, on the principal WHT
Employees or consultants
?
Business Tax
Business Tax
Gains or profits from business
“Business” is defined to include any - trade, - profession or vocation - manufacture, - adventure and - concern in the nature of trade
but does not include employment.
Pertinent issues
Turnover tax regime
Taxation of partnerships
Taxation of Individuals
Specified sources of income
Business income Employment income Investment income Farming income Rental income Any other
Taxation of Saccos
Interest income from members – Exempt Other non-mutual incomes – 30% of 50%
of income
Value Added TaxValue Added Tax
VAT is a general consumption tax assessed on the value added to goods and services.
The Kenya VAT Act was enacted in 1989,and commenced on 1 January 1990
Replaced Sales Tax It is a general tax that applies, in principle, to
all commercial activities involving the production and distribution of goods and the provision of services.
It is a consumption tax - Its borne ultimately by the final consumer
Value Added Tax (VAT)?
VAT Registration
Registration is now online – KRA online A taxpayer should register for VAT if
His business has supplied taxable goods or taxable services or expects to supply taxable goods or taxable services or both, the value of which is KShs. 5 Million or more in a period of 12 months (taxable person)
To register within 30 days
Deregistration – if turnover falls below KShs. 5 Million
Tax point for VAT
Once registered for VAT, a company should charge VAT at every point of sale
The tax point is the earlier of: date of supply; date of invoice/certificate; date of payment
VAT RatesVAT Rates
Status VAT rate
Examples
Exempt No VAT Journals and periodicalsUnprocessed agricultural produce
Zero-rated
0% Export of goods and services Newspapers
Standard rated
16% Advertising, printing services
VAT PenaltiesVAT Penalties
Failure to file return – Kshs. 10,000
Late payment of VAT shown on a VAT return – the higher of KShs 10,000 or 5% of the tax due
Additional penalties for late payment – 2% per month or part thereof
Failure to comply with ETR regulation – Kshs. 500,000 or 3 years’ imprisonment
General penalty - Kshs. 500,000 or 3 years’ imprisonment
Tax Planning & StrategyTax Planning & Strategy
Do you have a tax strategy…?
Strategy
Staffing
Coverage
AccountingCommunication
Processes
Planning
TaxManagement
Tax Strategy…
Tax Planning versus tax crimes
Tax Planning Paying the right amount
of tax at the right time in the right way.
Tax avoidance (planning) is the legal utilisation of the tax regime to one's own advantage, by means that are within the law.
Why? To reduce the tax burden; To defer tax payment; To avoid penalties; To manage tax risks;
• Tax Crimes• Tax evasion (tax crime) is
the general term for efforts to reduce taxes or pay no taxes by illegal means.
• Tax crimes are therefore acts or omissions that are in violation of tax laws and regulations.
• Its dependent upon the amount of admissible evidence against the taxpayer, not the amount involved.
How thin is the thin line…?
1
School fees Medical benefits Loans to employees Pensions/Provident Funds Mortgage Home Ownership Savings Scheme Benefits in kind Insurance relief
Personal Taxation
1
Staff training and development Staff party expenses Study leave Home leave passages Telephone benefit
Personal Taxation
Tax CrimesTax Crimes
Why do we commit tax crimes
Why do we commit tax crimes?
Lack of effective tax planning measures
Inadequate knowledge of taxation
Unrealistic tax regimes (perceived?)
Inefficient tax authorities
Self – discipline
Payback (perceived?)
When do you become a tax criminal?
Failure to file tax returns Filing false tax returns Conspiracy to impede/defeat the
collection of tax (Tax planning??) Keeping two sets of books
Rights & ObligationsRights & Obligations
The Balancing Act ... Your rights & Obligations
Obligations Rights
Taxpayers Charter
Balanced?? Yes/No The right (s) has
nothing right Perceptions
‘Substance over form
’
Tax Risks…Tax Risks…
Strategy
Staffing
Coverage
AccountingCommunication
Processes
Planning
TaxManagement
Tax Risk Management…
THE CEO…where the buck stops…
Introduction
The Auditors Risk…
Auditors’ exposure on “other taxes” The numerous forms?
VAT, PAYE, WHT, Customs, Business tax Auditors/ tax advisor seem to concentrate on business tax
only Are we doing tax health – checks, and, can we use the
findings to adjust accounts under audit?
The dual role of business? Saccos are both tax payers & tax collectors Tax penalties accrue in both
Is tax compliance a contingency or is it a riskIs tax compliance a contingency or is it a riskwe can arrest?we can arrest?
Is tax compliance a contingency or is it a riskIs tax compliance a contingency or is it a riskwe can arrest?we can arrest?
Tax on Investments…Tax on Investments…
Invest wisely…
Land
stamp duty - Collected by KRA
Rates - Leasehold
Buildings
Transfer - commercial or non-commercial
Shares & Unit trusts
Buildings cont...Tax Incentives
Use of Pension as collateral
You can assign up to 60% of the accrued benefits as security for mortgages
Investment Deduction
building used for manufacture (100%)
hotel certified as an industrial building (100%)
building outside Nairobi, Mombasa or Kisumu valued at more than KShs 200M (150%) Can you claim on construction of
rental property?
Investment deduction VAT VAT 5 claim
Tax on Buildings
East Africa & the EAC…East Africa & the EAC…
CUSTOMS UNION
COMMON MARKET
MONETARYUNION
POLITICALFEDERATION
2005 – 2010 July, 2010 2012 Ultimate
THE EAC JOURNEY...
EAC Customs Union Vs Common Market
Before EAC Jan 2005 to Dec 2009-Customs Union
Jan 2010- Full Customs Union
July 2010 – Common Market
Import Duty
35% to 25% 10% to 2% 0% 0%
Excise Duty
35% 35% 35% 0%
VAT 17% 17% - 18% 18% 0%
W/H Tax 18% 6% 0%
Work Permits fees
Payable Payable Payable Not payable
Warehouse Licence
Payable Payable Payable Not Payable
Rules of Origin
Not applicable
Applicable Applicable Applicable
Pertinent IssuesPertinent Issues
Is it a Change we can believe in?
Need to position ourselves!
SWOT Analysis! SWOT Analysis! SWOT Analysis!
Lets embrace the Common Market
Other barriers Our culture
Are we seeing the same “Animal”?
Do we understand the benefits the same way?
We need to anticipate challenges & be proactive?
Implementation National sovereignty Non-tariff barriers
Tax is a bitter pill
Subtle shift towards indirect taxes
Harmonisation likely to tilt the compass
Are we looking at more direct tax measures in future?
How does EAC affect our tax policy?
Lets not overload the system
Free movement of “Everything”?
Any anticipated reciprocation?
We know where we are!…
Let us exercise our rights for
change!
Vote wisely for your
Chairman
Vote wisely for your ICPAK
Representation
Accounting Profession is
broad…
TAXATION is BIG & Deep!
Presenter’s contact details:
Julius Mwatu – MBA, BSc., CPA(K), CPS(K), CFA(EA)
Chief Finance Officer – Indigo Telecom
Email: julius@indigo.co.ke
Telephone: 3876805-8 / 0728-888 555
Let us exercise our rights for
change!
KwaheriKwaheri
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