Business leaders constantly face a tumultuous, unpredictable, hostile, and rapidly evolving environment. Yet, they are expected to make business decisions that steer their organisations towards success.
In modern decision-making, the role of tax strategy is growing increasingly significant.
Tax departments play a vital role in defining business goals, breaking these down into strategies and implementable tasks to drive efficiency and unlock value in the marketplace.
This article explores key business trends in relation to taxes that are likely to steer enterprises towards success in 2025.
The first significant trend is politics—both geopolitics and local politics. Protectionist and nationalistic policies, anticipated from conservative regimes worldwide, will affect value chains for exporters and importers in these markets, requiring adjustments to transfer pricing policies.
Businesses must also comply with stringent country-by-country reporting requirements under Organisation for Economic Co-operation and Development (OECD’s) Pillar Two, especially if deemed to have a significant economic presence.
Labour mobility is another challenge, as stricter visa requirements make relocating employees more difficult. Organisations will need to consider virtual offices and secure contracts with talent to drive efficiency.
In Kenya, the political situation adds further complexity. Increased protests and instability require businesses to adapt their operations accordingly. Employers must also revise payroll taxes to account for doubled social security contributions, effective from February.
Additionally, new levies such as the housing tax and social health insurance, which employers must match for their employees, increase the financial burden. Navigating these uncertainties demands careful strategic planning.
The rise of digitisation and automation is another enduring trend.
Businesses are increasingly automating processes, assigning routine tasks to robots, and reducing costs through advancements in machine learning. While this may result in workforce reductions, it also presents opportunities to reassign staff to more strategic roles. Automation is also transforming hiring practices, although questions about its efficacy remain.
Training and upskilling employees will be crucial for aligning workforce capabilities with organisational goals.
The way businesses collect and manage data is also evolving. Enhanced transparency and compliance demands will become more prominent. For instance, the Kenya Revenue Authority (KRA) now requires real-time reporting on transactions.
Businesses must update their Enterprise Resource Planning (ERP) systems and integrate with the electronic Tax Invoice Management System (eTIMS) to ensure compliance. Presenting this data effectively is critical for enabling informed decision-making.
Tax department functions are no longer confined to the back office—they are becoming integral to business strategy. This includes advising organisations on compliance with sustainability initiatives and leveraging tax incentives. For instance, Kenyan businesses may consider locating operations in export processing zones or special economic zones to benefit from tax exemptions.
Similarly, businesses reliant on imported materials must reassess strategies in light of increased excise duty rates, potentially shifting to local sourcing.
Sustainability is another key focus. Incorporating sustainability into every aspect of the value chain not only ensures compliance but also enhances business valuation by investors. Tax professionals are essential in navigating these complexities.
Social and regulatory factors also demand attention in business planning. Organisations must cultivate workplace cultures that attract top talent while balancing the modern reality of remote work with effective supervision.
Deciding what functions to outsource versus managing in-house is critical for driving efficiency. Structuring contracts as consultancies, for example, could reduce obligations such as National Social Security Fund (NSSF) contributions and other levies.
Regulators are increasingly emphasising transparency and compliance, supported by advanced technology and skilled talent. The integration of eTIMS enables KRA to assess taxes on a transaction-by-transaction basis.
Businesses must not only upgrade their technology to meet compliance requirements but also foster positive, long-term relationships with the KRA. A proactive and cooperative tax department should prioritise avoiding litigation.
The central question remains: What should business leaders do?
Some companies bury their heads in the sand, hoping tax issues will resolve themselves. Others react impulsively to every regulatory change. The optimal approach lies between these extremes.
Assess your competitors’ strategies, consult with tax professionals, and devise a dynamic, adaptable tax strategy that aligns with evolving KRA requirements.
