Everything you need to know about tax

Everything you need to know about tax

In Summary

• If you intend to grow your business beyond the briefcase, then get a PIN number. It is good business practice; and it is essential for a good citizen. Also, most corporates will not do business with individuals or companies that do not have a PIN certificate.
• And that’s not all; if you intend to get a government tender, you need to get a valid tax clearance certificate, which you can only get if you have been paying your taxes, hence the PIN number.
• This is tax on any earnings based on your income range. However, if your income is below the taxable income range, which is Sh12,196,  your employer should file a nil return on your income. If you are self-employed, you should file a nil return on iTax yourself. 

The word tax tends to be very intimidating for most – it does have a gloom and doom lingering around it if you think about it, especially because words and phrases such as “penalties” and “the government will find you” are associated with it. As long as you do your due diligence as a citizen though, and pay your taxes on time, there is nothing to worry about. 

When should I start paying tax?

As long as you are 18 years old, and have an income, you are required to pay and submit your taxes. 

Why is it essential to get a PIN number?

If you intend to grow your business beyond the briefcase, then get a PIN number. It is good business practice; and it is essential for a good citizen. Also, most corporates will not do business with individuals or companies that do not have a PIN certificate. And that’s not all; if you intend to get a government tender, you need to get a valid tax clearance certificate, which you can only get if you have been paying your taxes, hence the PIN number. As you can see, to run a successful business, it is not negotiable; you need a PIN number. Your taxes run the economy; that is how the government pays its bills and brings development to the people.  

How do I get a PIN number?

First, you have to be at least 18, with a National ID to prove it. Thanks to technology, you do not have to physically go to Kenya Revenue Authority to get one. Go to the iTax website, https://itax.kra.go.ke/and click on the tab, ‘apply for new PIN’, key in your details and it will automatically generate a PIN for you. 

Do I need to get a separate PIN for my business?

It depends on the type of company you have. If it is a sole proprietorship, no, the business will use your personal PIN. If it is a limited company however, you need to create a new PIN for your business because you are a separate entity from your business. 

What is Income Tax?

This is tax on any earnings based on your income range. However, if your income is below the taxable income range, which is Sh12,196,  your employer should file a nil return on your income. If you are self-employed, you should file a nil return on iTax yourself. 

What are Annual Returns?

This is simply a confirmation to the government that you have earned what your employer has documented. It confirms how much tax was deducted, if at all. The returns you file on iTax are based on your income between January and December of the previous year.

When you file your returns on iTax and click ‘send’ on your form, you will get an automated response on email of the amount of unpaid taxes if any. You are then normally required to pay the arrears in taxes in a month. If your bill is too high you can always go to KRA to negotiate a payment plan with a debt officer.  

What is Withholding Tax?

 This is tax on any service rendered that is withheld by the person purchasing your service. For example, if you are contracted to build a website, it is the duty of the client to withhold five per cent 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 three per cent.

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. 

What is Installment Tax?

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

How do you pay your taxes?

When you submit your returns on iTax, it offers you options on what payment format you prefer. Cash, cheque or RTGS funds transfer, and you also select the bank you would like to make the payment to. Once you submit all that information, KRA automatically generates an e-slip notification, and sends it to the email you provided on your iTax form.  You have a window to pay by 20th of the next month to KRA. That e-slip is what you need to carry with you to your bank of choice to make the payment. If you pay later than the 20th, you face penalties. 

What if I have not made money at all that year? Do I need to file my returns?

Yes, you do need to file returns. As long as you have a KRA PIN and have opened your iTax account. You can simply log on to iTax and click on the file returns tab which gives you an option for “File Nil Returns” simply click on that and that’s it.