Make savings with tax incentives

The management of tax is an extremely delicate and crucial aspect of the business nowadays, especially considering the efficiency and effectiveness that the Kenya Revenue Authority carries its mandate of ensuring that taxpayers comply with the laid down regulations.

However, one thing which taxpayers usually forget is the fact that the tax statutes also provide some decent incentives which can lead to significant tax savings.

The statutes provide various tax incentives to different industries with a view to encouraging their development to enable them compete effectively not only in the region but also in the international arena.

For example, the tourism industry is crucial in the generation of the much required foreign exchange.

Therefore, the tax statutes allow for the construction of tourist hotels without any taxes being levied.

Indeed, the tax laws also allow the waiver of any applicable taxes on the importation or local purchase of equipment to be installed in the hotel.

This obviously is huge saving to any taxpayer constructing a hotel.

In addition, from 1 January 2010, hotel owners will be happy to know that they can claim half of the balance of their construction costs from their taxes, thus ensuring that they recover or recoup this cost within two years.

In the education sector, the tax laws allow the non payment of taxes that would otherwise be applicable in the construction of a private university.

The education sector is important, especially taking into account the fact that most of the secondary school graduates do not get a space in the public universities.

The government has created an incentive which disallows private investors from being subjected to certain taxes on the construction or the expansion of private universities.

In addition, the tax statutes allow the recovery of the remaining balance from the construction of educational institutions within two years from the tax profits of the company, thus ensuring that the owners recoup their initial investment in the shortest time possible.

The housing sector is also an issue of concern in the country.

Did you know that when building more than twenty five houses, the tax statutes allow the construction to be undertaken without taxation, subject to some specific conditions?

You may also be interested to know that one can be exempted from taxes on the purchase of capital assets (capex) whose value is more than one Sh1 million for use in a new investment or for expansion of an existing one.

Indeed, where the cost of the capital assets is more than Sh200 million, the taxpayer is allowed to deduct the whole cost from his profits prior to determining the taxes payable by the company/taxpayer.

In addition, where the investment is made within the towns adjoining Nairobi, Mombasa and Kisumu the amount of the deduction from the profits will be one-and-a-half times the cost of the investment, which means the investor actually not only recovers the cost of his investment, but also obtains a bonus of 50 per cent of the cost to his credit.

These are just a few of the incentives that are available.

There are several other incentives that I have not mentioned, which you as a taxpayer may be eligible for.

A review of the available incentives actually shows that each taxpayer is entitled to some deduction and the big question is whether whatever you are doing can lead to some tax savings through these available incentives.

Whether you are an employee, an employer, an investor, a capital provider or insurer, there is an incentive available for you, which you most probably are not aware about.

kthuo@vivafricaltd.com