TAXATION
OF SMALL - BUSINESS TAXPAYERS
1.
WHO IS A SMALL BUSINESS TAXPAYER?
The Income Tax Act defines a Small Business Taxpayer for
income tax purposes as a resident taxpayer whose gross turnover
from all businesses owned by such a person in a year is
more than five million but does not exceed FIFTY MILLION
SHILLINGS.
The
term TURNOVER refers to one's total sales in a year.
2.
PERSONS NOT INCLUDED
Not included in this category of taxpayers even when the
TURNOVER is less than fifty million shillings are persons
carrying on the following businesses:
(a)
Medical practice
(b) Dental practice
(c) Architectural service
(d) Engineering service
(e) Accounting and Audit practices
(f) Legal practice
(g) Any other professional services
(h) Public entertainment services
(i) Public utility service
(j) Construction service
NOTE:
Persons falling under the above listed business categories
OR whose gross turnover is above FIFTY MILLION shillings
in a year are required by law to file final and provisional
income Tax returns and be assessed to tax the normal way
which is based on Net income for the year and progressive
rates of tax.
3. COMPUTATION OF THE TAX LIABILITY
The tax payable is calculated and determined on the basis
of one percent of the gross turnover . In the case of a
taxpayer whose gross turnover is above five million but
does not exceed Twenty Million Shillings a year, the tax
payable is fixed at shs.100,000 a year.
The
entire tax rate structure is as follows:
| GROSS
TURNOVER |
TAX PAYABLE |
(a)
Gross turnover above
5 million and not exceeding
Shs. 20 million a year.
|
100,000/=
|
| (b)
Gross turnover above Shs. 20 million and not exceeding
30 million a year. |
1%
of gross turnover
up to maximum of
Shs. 250,000/= |
(c)
Gross turnover above Shs.30 million and
not exceeding
Shs. 40 Million a year.
|
1%
of the gross turnover up to a maximum of Shs 350,000/= |
(d)
Gross turnover above Shs. 40 million and
not exceeding
Shs. 50 million a year
|
1%
of the gross turnover up to a maximum of Shs. 450,000/= |
ILLUSTRATIONS
A.
Bracket (20M - 30M)
(i)
Actual turnover
1% of turnover |
22
million
Shs 220,000 (less than 250,000/=)
|
| Therefore
tax payable is Shs 220,000/= |
(ii)
Actual turnover:
1% of turnover |
28
million
Shs. 280,000 (more than 250,000)
|
| Therefore
tax payable is Shs 250,000/= |
B.
Bracket (30M - 40M)
(i)
Actual turnover:
1% of turnover |
34
Million
Shs. 340,000/=
(less than Shs. 350,000/=)
|
| Therefore
tax payable is Shs. 340,000/=
N.B: An example of exact amount should be used
e.g 40 million
This falls in the 30 - 40 bracket. 1% of turnover
= 400,000
(more than 350,000)
Therefore
tax payable is 350,000/=
|
(ii)
Actual turnover:
1% of turnover: |
39
Million
Shs. 390,000 (more than Shs. 350,000/=)
|
| Therefore
tax payable is Shs. 350,000/= |
C. Bracket (40M - 50M)
(i)
Actual turnover
1% of turnover |
Shs.
43,580,000/=
Shs. 435,800
(less than Shs. 450,000/=
|
| Therefore
tax payable is Shs 435,800/= |
(ii)
Actual turnover
1% of turnover |
Shs.
48,700,000/=
Shs. 487,000/=
(more than Shs. 450,000/=)
|
| Therefore
tax payable is Shs. 450,000/= |
4.
RETURN OF GROSS TURNOVER
In order to enjoy the benefit of paying the LOWER tax
in each bracket, a taxpayer is required to file a return
of Gross turnover for a given year. Otherwise a taxpayer
will automatically be assessed to the standard tax in the
bracket in which such taxpayer falls as follows:
Gross
Turnover Bracket
payable
|
Annual
Tax |
1.
(0 - 20M)
2. (20 - 30M)
3. (30 - 40M)
4. (40 - 50M)
|
100,000/=
250,000/=
350,000/=
450,000/= |
5.
(a) FINALITY OF TAX
The tax is computed on the basis of GROSS TURNOVER and is
a final tax. This means no further assessment is required.
Also
note that no deductions are allowed in respect of any expenditure
or losses.
(b) Set off of Tax Credit
No tax
credit is allowed to be set off against the final tax except
in the following cases
(i)
A tax credit arising out of withholding on receipt included
in the gross turnover of the taxpayer.
(ii)
Any provisional tax paid against the taxpayer's turnover
during the year.
6. PAYMENT OF TAX
The
tax may be paid in full at any time during the relevant
year of
income. A taxpayer may however opt to pay the tax provisionally
during the year in:
- four
equal quarterly instalments in case of individual.
- two
equal half yearly instalments in case of any other
person e.g, company
7.
ELECTION (OPTION) FOR INCOME TAX ASSESSMENT
The law provides for an option in writing notifying
the Commissioner that the taxpayer prefers (opts) to be
assessed under the NET INCOME method. In order to qualify,
a taxpayer is required to submit the election notice together
with his/her Annual Income Tax Return for that year by the
due date of filing such return.
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