If your growing business is losing cash in taxes, this is for you!
You're making sales, paying suppliers, covering expenses and trying to grow.
But when tax time comes, a big chunk of your hard-earned money goes to KRA.
Here's something worth checking: are you paying the right amount of tax, or are you using the wrong tax approach and missing legitimate deductions?
Here are 3 things to look at:
- Is Turnover Tax really right for your business?
TOT is charged at 1.5% of gross sales for eligible businesses with annual turnover above KES 1 million and up to KES 25 million.
Here's the catch: you cannot deduct business expenses under TOT.
So, if you're making KES 500,000 in sales but spending most of it on stock, rent, salaries and other costs, you're still taxed on the full sales amount.
The standard income tax regime may work out better if your profit margins are thin.
You can also elect out of TOT by giving written notice to the Commissioner. Just compare both tax computations before making the move.
- Are you claiming your capital allowances?
Bought computers, machinery, furniture or other business assets?
Some qualifying assets attract capital allowances that can reduce your taxable income under the applicable income tax regime.
And don't confuse accounting depreciation with tax deductions. They aren't necessarily the same.
- Are your business expenses properly documented?
Buying from a small supplier who cannot issue an eTIMS invoice?
Don't automatically assume you cannot document that purchase.
Check whether Buyer-Initiated Invoicing (BII) applies. For qualifying purchases from small-scale suppliers with annual turnover not exceeding KES 5 million, you can initiate an invoice through eTIMS, subject to the seller's approval.
Keep your supporting documents and make sure every transaction is properly recorded.
Here's the bigger picture:
Tax planning isn't just about filing returns before the deadline.
It's about choosing the right tax regime, claiming what the law allows and keeping records that support your claims.
Your business works hard for that money.
Don't let poor tax planning eat into it.
