How To Differentiate Between Taxable And Non-Taxable Benefits And Incomes
As an employer or potential employer, you will come across terms like taxable and non-taxable benefits or taxable and non-taxable incomes almost daily. For the most part, distinguishing the elements from one another can be daunting if you are not clued up on the tax laws provided by KRA and any other relevant authority.
Most benefits and incomes are taxed in part and up to a certain limit. It requires a good read of the tax regulations to really understand what this means.
To show you what I mean, in a case where the employer provides free meals to his/her employees, it is known as a non-taxable benefit to an extent after which it becomes a taxable benefit. i.e., it is a non-taxable benefit if it does not exceed a maximum of 4,000 ksh per month. Should it exceed the 4,000 ksh per month, it ceases to be non-taxable and becomes a taxable benefit.
This is not to say that it is impossible to handle the task in a way that complies with the laws as provided by KRA and or any other regulations governing income tax.
However, the best approach is the appointment of a tax handler who takes charge of all matter’s taxation for your organization. Generally speaking, partnering with a team of qualified accountants who have undergone training by KRA or have gained experience in dealing with the KRA taxing systems can go a long way in easing up the process for you and your organization.
Involving Certified Business Solutions means that we will be in charge of all matters concerning taxation in your organization. That is to say; we will use our deep understanding of tax laws to ensure compliance with all laws and regulations and provide maximum satisfaction to you as our partner.
Our team acknowledges that the key to an effective and efficient taxation system is understanding your organization and all the benefits and allowances you provide to your employees.
Our tax savvy team can make sense of what is and what’s not a taxable income/taxable benefit as set out by Kenya Revenue Authorities. Some incomes are taxed based on their prescribed limits. For this reason, for anyone who is not well informed about such limits, it can be hard to tell what percentages should be used, and this may result in over-taxation or under taxation.
It is also important to keep yourself updated with the changes that occur concerning tax laws. This way, you never have to repeat a job because it was performed incorrectly or using an old system.
KRA is constantly coming up with new laws, regulations, and terms mostly to help ease the taxpayer burden, minimize cases of tax evasion occurring, and make sure that the government collects maximum revenue for effective governance.
For instance, bonuses, overtime, and retirement benefits were for some time treated as non-taxable income and non-taxable benefits. Later on, the laws were revised, and now the three are taxable. In the case of retirement benefits, it was rendered taxable in 2020 regardless of the amount earned as long as the allowance falls within the specified taxable bracket.
It is also worth noting that taxable benefits do not exist solely as cash benefits. Sometimes, an employer may decide to give some benefits to his/her employees, either as cash benefits such as payments in lieu of leave, subsistence, sick pay, and many others. Alternatively, the same employer may decide to give their employees non-cash benefits such as providing furniture to employees, and an employee may be provided with a motor vehicle, medical cover, etc.
A good tax handler will advise you on how each of the benefits, be it cash or non-cash, should be treated, and where possible, he should be able to perform all the necessary tasks for you and your organization.
