IMPACT OF TAX LAWS ON AGRIBUSINESS. Presentation by: CPA Zachary Muthui

Transcription

1 IMPACT OF TAX LAWS ON AGRIBUSINESS Presentation by: CPA Zachary Muthui Uphold public interest

2 Taxation in Agriculture Tax is a major expense in company s P&L; - 30% of company s profits are paid to KRA as corporate taxes. Being a major expense, one can reduce it by taking advantage of the available tax incentives o Farm work allowances o Wear and Tear allowances o Being tax compliance

3 Impact of tax laws on agriculture Agribusiness in Kenya is growing at a tremendous rate, however young farmers feel that taxes have an impact and therefore increasing costs of production. Below are areas that taxes impact agribusiness. Taxes on inputs for manufacture of growing of agricultural products

4 Impact of tax laws on agriculture B/Fwd Tax Loss - Climate changes are unpredictable which lead to unforeseen losses, the current tax regime allows a business to carry B/Fwd losses for up to a period of 5 year only. Should this be exempted to agribusiness? Flexibility for Tax installment 75% percent which is paid on 9 th month, The tax man assumes your 9 th month will correspond with harvest time

5 Impact of tax laws on agriculture Cess on products This is an indirect tax. On other businesses we have VAT as an indirect tax. Which of the 2 has a higher impact on the business?

6 Recent development on reduction of tax burden on Agribusiness Over the recent years the following tax changes have had an impact on agriculture:- VAT Bill this scraped quite a number of zero rated products and VAT on inputs. However the government is slowly re-introducing the incentives e.g. Zero rated on: Milk and cream of tariff numbers and which is neither concentrated and does not contain added sugar or other sweetening matter is now zero rated with effect from 3 April These Items were previously VAT exempt.

7 Recent development on reduction of tax burden on Agribusiness Zero rated on: The supply of agricultural pest control products is now zero rated. Additionally, all inputs and raw materials purchased locally or imported by manufacturers of agricultural pest control products are zero rated. Previously agricultural pest control products were taxable and this resulted in increased cost of production to farmers These amendments were effective as from 3 April 2017

8 Recent development on reduction of tax burden on Agribusiness Exempt supplies: Materials for the construction of grain storage, upon recommendation by the Cabinet Secretary responsible for agriculture, will be exempt from VAT. The exemption is aimed at making construction materials affordable to farmers or investors, and to enable them have modern grain storage facilities

9 How to reduce tax impact Tax compliance to avoid unnecessary penalties Taking advantage of tax incentives Tax amnesty Timing of tax payments to avoid lateness Training Engage tax professionals Use of lobbies for review of tax laws Internal tax function Review of policies and contracts by tax advisors

10 How to reduce tax impact On Cash flows a) Proper cash budgeting is required to enhance timely payment of all taxes so as to avoid penalties and interest; b) Finance manager should prepare a calendar or a diary listing all taxes due for the year; c) Taxes under consideration include VAT, PAYE, corporate instalment tax, withholding tax, customs and excise, among others

11 How to reduce tax impact On Compliance issues a)to pay all taxes by due date to avoid late payment penalties; b)tax compliance audits; c) Tax consultants to be involved while making decisions likely to have tax implications e.g. capital budgets, contracts, etc.

12 Tax incentives Farm work allowances; Capital allowances Tax losses used to reduce taxable income; Tax refunds used to reduce tax payable; Lower tax rate on listing at NSE

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