TAX ADVICE FOR CREATIVES: What You Need To Know
Taxes have existed since time immemorial, even before the monetary system came into place, but dealing with them can seem a bit nerve-wracking. But it really does not have to be. Baraza Media Lab recently invited a team from the Kenya Revenue Authority (KRA) to explain the country’s tax framework, especially in relation to those in the creative economy.
This article will cover the major questions most creatives have in regard to taxes, and of course, you can always reach out to KRA on phone, via email or physically at their headquarters located at Times Towers Nairobi, or any of their other branches countrywide to get further clarity and avoid penalties.
- Where exactly do my taxes go?
Citizens and residents of a country are compelled to contribute a portion of what they earn to government coffers, and in turn the government is obligated to deliver something called ‘The Common Good’. Social amenities like roads, safety, education, healthcare amongst others are all part of where our taxes go. These ‘benefits’ are divided equally, and no one gets more access to services because they contribute more; in other words government services are not commensurate with the amount any individual taxpayer contributes.
- Can I file my taxes online?
Yes. Since the year 2014, the taxing system went digital, and now all you have to do is sign up on iTax, log into your portal and file your taxes, plus view your taxpayer history. The financial year begins in June, and the deadline for filing your taxes is 30th June. The iTax platform operates as a self-assessment system, where you are expected to declare your earnings and file your taxes accordingly.
- How do I register to file my taxes?
You start by getting a KRA pin, which is your unique legal identifier that allows you to file your taxes. It is your online tax identity.
- How do I learn how to file taxes?
If you get on the KRA website, they have a section where they teach you how to file your taxes according to the class that you fall into. You could also walk into any KRA office near you and get educated on how to do it, or hire a tax consultant.
- What are direct and indirect taxes?
Direct taxes are the amounts you remit directly to the government as income tax. Indirect taxes, which are less noticeable, are the charges you pay when you buy goods and services and they include Value Added Tax (VAT), excise duty, and custom taxes.
- What is income tax?
Every country in the world charges income tax. Kenya has been using the same Income Tax Act since 1973, that governs how individuals are taxed according to their income. People earning more are charged more income tax as a percentage of their income, up to a 30% limit.
- Do churches, politicians and KRA workers pay taxes?
Yes, contrary to popular belief, they do. As long as you earn any sort of income, including the president, you are obligated to have a KRA Pin, file and pay taxes. Every income is taxable.
- What are some of the things that are chargeable by tax?
Rental incomes. These are charged to landlords who rent out any structures, and they are required to pay 10% of their earnings.
Pensions are also taxed at 10%, 20% and 30%. They are only charged for those who are between 60-64 years of age. Past that (65 years- senior citizens), pensons are no longer taxed.
Capital gains, taxed at 5%, where people are taxed on profits they have made for the sale of any assets.
Farming income which is taxed at 30% of any profit made from the sale of crops or livestock.
- Who is charged Pay As You Earn (PAYE)?
This is a tax deducted by employers, who are mandated to submit it thereafter to the government. By the time you receive your paycheck, the tax has already been deducted.
- Why am I charged withholding tax?
This is for people who are not formally employed, but instead are commissioned by different organizations to work for a short time period. The person who has hired you will withhold a certain percentage of the total amount, and pay it to KRA. You will thereafter receive a withholding certificate from KRA. This form of taxation is common with creatives and freelancers.
- What does it mean when KRA states that withholding tax is claimable?
It means that when you are filing your taxes, you can state that you already paid the withholding tax, so they deduct that from the total amount of tax you are supposed to pay.
- Why does KRA still tell me that I owe them money even after paying withholding tax?
You are taxed against your gains. Even after paying withholding tax, KRA will still tax the remaining profits. Thus, it is important to state all your work expenses, even if you went at a loss, so that the KRA can tax you (or not) accordingly.
- At what amount does KRA start charging withholding tax?
For any sort of income, whether formally employed or commissioned, the government only starts taxing at Ksh.24,000. Any amount below that is not taxed.
- If I, as a creative, hire someone else under me to help with a commissioned job, should I submit their withholding tax to KRA, and should I also list them as a work expense while filing taxes?
Yes. You should tax them, and submit their withholding tax to KRA. You can also list their payment as an expense on your side. Make sure you list all the expenses you incurred on a job, including paying people.
- Do people earning above Ksh.24,000 get any sort of tax relief?
Yes. The government grants tax relief of Ksh.2,400.
- What is the highest percentage someone can be taxed?
30% is the highest amount of tax the government can deduct.
- How do I know that the person who commissioned me filed my withholding tax?
When the person who hires you submits withholding tax on your job, you will get a certificate. If you do not get a certificate after working, kindly follow up to ensure your withholding tax was filed. Remember, this certificate will be of assistance when filing your taxes when it comes to claiming expenses.
- Are there creatives who are charged VAT?
If you are earning above Ksh. 5 million annually, you will be charged VAT. It is a monthly tax, whether or not you earned anything that month. The only way to leave the VAT bracket is to declare that you have left the particular profession.
Hopefully, this has given you some insight on how to file your taxes, and the purpose that your taxes serve. There are many more sources online that have more information, so don’t hesitate to educate yourself.
Tulipe ushuru, tujitegemee!