Tax Matters IV
See tax matters one, two and three.
Corporation Taxes
Corporation taxes are forms of income taxes that are levied on corporate bodies such as limited companies, trusts and co-operatives. In Kenya, Corporation taxes contribute 99% of the total revenue collected. Resident companies are taxable at a rate of 30% while non-resident companies are taxable at a rate of 37.5% on their taxable profits.
Corporation taxes differ from individual taxes in two ways. First, they are taxes imposed on net income, but not the gross income, or on profits with permissible deductions for most costs of doing business. Secondly, these taxes apply only to businesses that are chartered as corporations—not to partnerships or sole proprietorships.
There are 3 Principal Laws that affect for Corporate Tax in Kenya. They are:-
• The Kenya Value Added Tax Act
The other laws that provide the remaining 1% of total revenue are:
• The Road Maintenance Levy Fund Act
• The Widow’s and Children’s Pension Act
• The Air Passenger Service Charge Act
• The Parliamentary Pensions Act
• The Entertainment Tax Act
• The Stamp Duty Act
• The Traffic Act
• The Betting, Lotteries, and Gaming Act
• The Transport Licensing Act
• The Directorate of Civil Aviation Act
• The Second Hand Motor Vehicle Purchase Act
For Export Processing Zones, the rate is NIL for the first 10 years. after that they will be taxed at the rate of 25%. Registered Unit Trusts and Collective Investment schemes have exemptions that are subject to conditions. For newly listed companies approved under the Capital Markets Act:
- 27% with 20% issued shares listed first 3 years after listing
- 25% with 30% issued shares listed during the first 5 years after listing
- 20% with 40% issued shares listed first during the 5 years after listing
Corporations are given allowable deductions on taxes called Capital allowances. These are a tax reliefs designed to allow the cost of certain of your company or organisation's assets to be written off against its taxable profits. There are different types of capital allowances. For each allowance, there are special rules to calculate how much, if any, relief you can claim.
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Allowable capital deductions and their rates[/caption]
The corporate income tax rate, in Kenya was initially 45%. It has however been cut down through the years and it's now fixed at 30% for resident companies and 35.7% for branches of non-resident companies.
However, comparing Kenya with other countries, our tax burden appears excessive. Figuring out all taxes, levies, and charges, the total corporate tax burden will be about 50%, thus the numerous propositions from taxpayers to have the taxation system reformed to enhance a simplicity which will consequently simplify compliance.
*Reference, PWC
