Welcome to the TUKA CFO Newsletter

Hello and Welcome to the TUKA CFO Newsletter!

In the constantly evolving business and regulatory environment in Kenya, getting insights from qualified financial and legal professionals is a necessity. Laws change, compliance standards evolve, and financial products continually adapt to the needs of the market. For business operators like yourselves who are constantly challenged to understand what these changes mean for your organizations, we believe having a frequent source of professional insights is crucial.

This is where the TUKA CFO Newsletter comes in! 

Delivered directly to your inbox every week, our newsletter is curated to provide you with the latest and most critical finance management tips, tax compliance updates and other financial insights to give you and your business an edge. What sets our Newsletter apart is its foundation on the collective wisdom and insights from the 50+ financial professionals on our platform, from tax advisors to Controllers. This diversity of perspectives ensures that the content is not only comprehensive but also deeply insightful, offering quality insights that speaks directly to the challenges and opportunities you face.

We aim to be your go-to resource for insights that not only keep you informed but also position your business for success. Whether it's navigating the intricacies of new tax laws, staying ahead of regulatory changes, or exploring innovative financial products that can enhance your company's performance, our Newsletter is here to ensure that you have the knowledge and insights to make informed decisions.

Welcome aboard,

Lévi Kedowide, Founder | TUKA

We asked our experts…

For our 1st newsletter, we asked 2 tax experts on our platform Nelson Gacheru from Niall & King and Beatrice Njeri from Tarra Agility to provide their insights on what business owners should consider this year ahead of tax season as they optimize their tax bill.

What topics and tax deductions should be top of mind for taxpayers trying to optimize their taxes?

From Nelson Gacheru | Niall & King:

The Finance Act, 2023 had a cascade of effective dates for its various provisions.

The key changes that came into force from 1 January 2024 included: 

a) Etims and expense deductibility: Supplier invoices/receipts that are not generated from a VAT fiscal device will no longer be deductible against business income for tax purposes. A business owner should be keen to obtain Etims invoices for their large purchases, if not all of them.  

b) Taxation of Start-up ESOPs: Eligible start-ups will have it easier when seeking to acquire and/or retain top talent. Their employees can now benefit from a deferral of the tax point to when they dispose of their shares, leave the company or five years from the date of award, whichever is earlier.

c) Post-retirement medical fund relief: A new relief against contributions made by resident individuals to a post-retirement medical fund is now in force. The relief is 15% of the contributions or KES 60,000 per annum, whichever is lower.

d) Rental income tax: The rate of tax on residential rental income tax has been lowered from 10% to 7.5% from 1 January 2024.

From Beatrice Njeri | Tarra Agility:

Mandatory e- TIMS compliance 

In June of 2023, a significant change swept through the tax landscape with the introduction of a provision in the Finance Act.

This provision outlined that any expenditure or loss, without invoices generated through an electronic tax invoice management system, would no longer qualify for deduction against revenue. Fast forward to September 1, 2023, when the winds of change blew stronger as the e-TIMS (electronic tax invoice management system) compliance, initially focusing on VAT registered individuals, became mandatory for all businesses.

The deadline for compliance was set for January 1, 2024. From this date forward, any expenditure or loss without invoices generated via an electronic tax invoice management system would no longer be eligible for CIT (Corporate Income Tax) deduction against revenue, unless specifically exempted from electronic tax invoicing requirements. This shift in tax regulations underscores a pivotal point for businesses, the necessity to adapt to the e-TIMS framework. Notably, the importance of compliance goes beyond mere adherence to statutory requirements; it directly impacts the business ecosystem.

In a world where collaboration and partnerships are key, companies are likely to prefer working with e-TIMS compliant entities. The ability to deduct expenses becomes a strategic advantage, making non-compliance not just a regulatory issue but a potential business loss.

What are typical tax dispute cases business taxpayers should be prepared for and engage tax advisors to resolve?

From Nelson Gacheru | Niall & King : 

Broadly, tax disputes arise from either non-compliance with tax statutes or erroneous interpretation of those statutes especially in relation to the construction of the tax base. Most times, these two causes are often present in the same tax dispute.

Non-compliance cases are easier to resolve when they arise. They can also be mitigated by carrying out routine tax health checks to ascertain your level of compliance and make self- declarations of unpaid taxes to the revenue authority. Currently, there is a tax amnesty program on penalties and interest arising from undeclared taxes up to 31 December 2022. It would be prudent for taxpayers to consider undertaking a tax health check for the five years up to 2022.

Disputes arising from different interpretations of tax provisions by the revenue authority and the taxpayer may require the intervention of tribunals and courts before they can be resolved. One needs to engage a qualified tax practitioner to assist with such cases.

From Beatrice Njeri | Tarra Agility:

Business taxpayers should be prepared for a range of tax disputes, each necessitating the expertise of a tax professional for effective resolution.

Effectively navigating the intricate realm of tax disputes requires a keen awareness of the triggers that initiate the audit process. Factors like filing a nil return, making downward amendments, applying for tax credits or refunds, experiencing continuous losses, making voluntary disclosures, industry-specific issues, or even neglecting to file returns can all serve as catalysts for this process. While the path through a tax audit may seem straightforward at first glance, it's anything but casual.

Every stage in the assessment process, starting from the receipt of the initial tax assessment to the issuance of a Decision by the Kenya Revenue Authority (KRA), represents a pivotal point. Each of these stages carries inherent risks, including the challenge of navigating tight timelines and adhering to the provisions of the law that outline the taxpayer's duties. Simultaneously, they present opportunities for the taxpayer to demonstrate that they are not liable for the assessed taxes. Given the intricacies involved in tax disputes, seeking professional assistance becomes a strategic imperative. Involving a tax expert from the moment the KRA signals its intention to audit is crucial. A tax expert possesses a deep understanding of the intricacies within tax laws and regulations, and their timely intervention can make the critical difference between a smooth resolution and a protracted legal battle.

From our desk…

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