When someone complies with tax laws, it means they have followed all legal procedures and obligations, such as reporting income, filing taxes, and making timely payments of taxes.
Three criteria are used to determine compliance with tax laws: payment, filing, and reporting compliance. The percentage of necessary returns that are filed on time is monitored by the filing compliance metric. The reporting compliance measure measures the percentage of accurate tax liabilities that are reported. A measure of payment compliance monitors the percentage of reported tax that is paid on time.
Being aware of the types of taxes a company is required to pay is paramount for compliance, and subsequently avoiding penalties. Some of these taxes are:
- Pay-As-You-Earn (PAYE): Companies must file monthly PAYE forms and withhold and remit income tax from their employees’ salaries.
- Income Tax: Both individuals and businesses have to incur income tax on the revenue they generate. The residence status and earnings levels of the entity determine the tax rates.
- Value Added Tax (VAT): Companies who have annual revenue above a particular threshold are obliged to register for VAT and impose it on taxable supplies. Regular filing of VAT returns is required.
- Withholding Tax (WHT): applies to payments made to non-resident entities, where; specific amounts need to be deducted and sent to KRA.
- Excise Duty: Specific goods and services are subject to excise duty.
A Tax Clearance Certificate (TCC) is then issued by KRA, as proof of the corporation having filed and paid all its taxes, and is valid for twelve months only. The company must first have filed all the tax returns on or before the due date for all applicable tax obligations, paid all the applicable tax on or before the due date and also cleared all outstanding tax debt for it to apply for a Compliance Certificate.
For more insights pertaining to this matter, you can reach the writer at maureen@mmsadvocates.co.ke. You can also contact us at MMS Advocates, Lower Duplex Apartments, Lower Hill Road, or email us at info@mmsadvocates.co.ke