With the June 30 deadline looming for individual income tax returns, Kenyan businesses can play an invaluable role in educating employees about the importance of filing their returns in time to comply with tax regulations and avoid penalties.
That’s according to Nikki Summers, Regional Director for Sage in East Africa. She says individuals who have a personal identification number (PIN) registered with the Kenya Revenue Authority (KRA) must submit a tax return, even if their employer withholds income tax on their behalf or even if their revenue for the year is nil.
The reason for this is that taxpayers may need to report income they have earned on top of their salaries from their formal employment, as well as various taxable deductions to the KRA. “This also enables KRA to reconcile individual tax returns with employer submissions,” adds Summers.
Taxpayers, don’t procrastinate to file your personal tax return
Summers notes that many people wait until the last minute to file their tax returns. Though the introduction of the iTax online filing system has made it easier than ever to send in your returns, it is wise to gather your supporting documents and file long before the deadline, she adds.
Filing on time enables you to avoid stringent fines and penalties from the KRA. The penalty to employees for failing to file a tax return is the higher between 5% of the tax due or Kshs 20,000, while the penalty to employers for late submission of Pay As You Earn (PAYE) returns is the higher between 25% of the tax due or Kshs 10,000.
“Much the same as other tax authorities in East Africa, the KRA is clamping down on non-compliance among business and individual taxpayers,” says Summers. “Employers should help to drive awareness of the risks of non-compliance in the workforce, and of course, deliver the P9-A forms teams required to file in a timely manner.”
Business owners and managers: Use software to take the pain out of filing
Kenyan businesses should ensure that they declare the correct earnings for all employees and that they include the right taxes and statutory deductions in payroll calculations.
“Though some businesses still use manual methods like spreadsheets to do their calculations and file returns, automated solutions can take the pain out of keeping reliable records and performing accurate payroll calculations,” says Summers. “Automated solutions can automatically calculate the deduction and generate compliance reports. That makes it easier to perform accurate calculations, file submissions on time and generate reports and electronic payslips.”
Automation also makes it simpler to keep track of changes to tax regulations that impact on payroll tax calculations and various changes in legislation. These solutions are constantly updated to align with the latest tax laws and tables, so one needn’t update spreadsheet formulas or learn to make new manual calculations when changes are made.
Failing to comply – whether through deliberate evasion, late payment of payroll taxes underpayment as a result of a miscalculation – could result in your business facing large fines and penalty interest for underpayment of taxes and statutory deductions. “Besides that, tax compliance means that your business remains eligible for government tenders and helps to play a part in building up Kenya’s economy,” says Summers.