How organizations can adapt in a changing tax landscape?
The Kenyan tax system has experienced significant modifications just this year.
Currently, additional deductions are applied on both individual and business income.
- Finance Act 2023 introduced the Affordable Housing Levy deductible on the employee’s gross income at the rate of 1.5%, the employer is required to match the employee’s contribution.
- Finance Act 2023 amended the Turnover Tax rate increasing to 3%.
- NSSF Act No 45 of 2013 effected a 12% of pensionable monthly income contribution distributed 6% of the Lower Earning Limit set at Ksh. 6,000 and 6% of the remainder up to the Upper Earning Limit set at Ksh. 18,000, and the employer matching the employee’s contribution.
- Finance Act 2023 amended the PAYE introducing new tax bands; 32.5% on all monthly income in excess of Ksh. 500,000 but less than Ksh. 800,000; 35% on all monthly income exceeding Ksh. 800,000.
The impact of the additional deductions on the disposable income is obvious. For businesses, the tax cost has gone up and may continue to increase as more changes are introduced. At the same time, reduced individuals’ disposable income is expected to affect the consumers’ purchasing power which could ultimately have an impact on the general business performance. This may significantly negatively impact the short-term survival of businesses in Kenya.
Hence, comes the question; how can businesses stay adaptable in the changing tax environment?
Businesses must first be compliant; sudden changes in tax laws could catch them off guard, especially if there are lots of changes happening quickly. The consequences of non-compliance are negative and the tax risk is increased. Therefore, to stay resilient, it is crucial for businesses to continuously assess compliance with current applicable tax legislation.
Secondly, businesses must continuously consult with experts, who not only offer advice on what to look at in terms of tax planning but also alert them of relevant tax opportunities.
Experts don’t simply inform firms of changes; they also offer business consulting services in areas like governance, finance, and which types of registration qualify for specific tax benefits. Business long-term sustainability and survival plans are also necessary for adaptability in times of turbulent tax regulations.
