Custom Duty is a tariff or a tax paid to the government imposed on good transported, imported or exported, across international borders. In general, the purpose of the custom duty is to protect the country’s economy, support local merchandise, provide form of protection to the country’s jobs, and control the transport of restricted and prohibited products by regulating the flow of goods into and outside the country. 

The custom duty is either specific or on ad valorem basis, it is a rate or a percentile determined by the total value of the goods paid for in another country; its value is not based on factors such as quality, size or weight of the good.

In general, each country imposes its own type of custom duties, and these are:

1. Basic Customs Duty (BCD).
2. Countervailing Duty (CVD).
3. Additional Customs Duty or Special CVD.
4. Protective Duty.
5. Anti-dumping Duty.

WHAT IS THE DIFFERENCE BETWEEN TAX AND CUSTOMS DUTY?

A tax is placed on all types of goods sold or services provided in the country, both imported or exported, and taxation is considered a source of income generation for governments. On the other hand, a duty is a type of tax yet imposed only on goods being imported into the country, and its main purpose is to protect economies upon different aspects. Both taxes and duties are charged to the importer on his shipments that must be paid to the relevant authorities and adds on to the overall landed cost to be paid for a good imported to the country.

Corporate Tax is a tax charged on the taxable incomes (Profits) of entities such as limited companies and other organizations including clubs, societies, associations and other unincorporated bodies.

This guide provides basic overview of Corporation Tax. It explains the meaning of “Corporation Tax”, who is liable and what you must do and when if you are subject to Corporate Tax requirements. It outlines how the tax is calculated, what are the applicable tax rates and when to pay.

It also explains common income tax terms such as “Self Assessment”, “Accounting Period” and “Taxable Profits”.

Corporate Tax is a tax charged on taxable income (Profits) of entities such as limited companies, institutions or organizations including clubs, societies, associations, co-operatives, charities and other unincorporated bodies.

Taxable incomes (profits) for charging Corporation Tax include:

• Profits from business undertakings

• Profits from conducting  investments (except such dividends which are taxed differently as final taxes)

• Tax paid out of turnover of companies with perpetual unrelieved losses for three consecutive years.

Value Added Tax (VAT) is an indirect tax on the consumption or use of goods or services; it is applied across the stages of the supply chain, from when the manufacturer purchases raw materials until the retailer sells the goods to the consumer. Registrants for VAT will collect the VAT applicable to their taxable activities from their customers and pay the tax collected to the authorities. 

Any natural and legal person who carries on economic activity is subject to VAT and is required to register for VAT.

There are several types of taxations imposed on businesses across the East Africa countries; including Corporate Tax, Value-Added Tax (VAT), Custom Duty, Excise Tax, And Withholding Tax (WHT). All of these levies impose a tax burden and concern on business owners; accordingly, tax planning is a recommended practice for taxpayers since the early stages of their operations.

Tax planning is a key to successful business management and operations. Understanding the basics of tax planning and the available resources allow taxpayers to plan and compute their tax calculations in an efficient and less stressful way. Tax planning is the process of analysing a financial plan from a tax perspective and ensure tax efficiency, controlling capital deployment, managing and maximising income while reducing tax burdens. 

WHY IS TAX PLANNING IMPORTANT?

Tax planning is an ongoing practice and has an extended impact on the businesses; therefore, it is preferable that businesses plan their tax strategy early, and further review and amend it regularly as per the changing objectives of the business. 

Failure to formulate and implement a tax planning strategy does not only put taxpayers at a risk of failure to file their tax returns and pay their tax liabilities on time thus enduring penalties, but also levies tax burdens that could have been legally reduced through tax planning such as investment and asset allocation, investment in tax-saving instruments, and making use of deductions such as added employee benefits to reduce the total taxable income.

At Sajili Biashara Portal, we are aware of the time requirement and sensitivity of changing tax strategies and applying useful tax schemes, and so you may work along with our dedicated team of tax advisors in reviewing your corporate structure and operations, and set an on-time and flexible tax planning for your business through:

• Analysing if your entity is entitled or required to register for taxation on a voluntary or mandatory basis.
• Reviewing your entity’s corporate structure and provide advice on a tax-efficient restructuring scheme.
• Investigating the legal strategies that could be implemented to achieve structured tax savings.
• Setting a tax planning framework and action plan to achieve the tax planning objectives.
• Adapting your entity’s tax planning to the needs of your business.
• Assisting in preparation and submission of tax applications with the required authorities.
• Timely follow up with the entity’s tax liability.
• Reviewing of all transactions.

Withholding tax is the amount of tax retained by one person when making payments to another person in respect of goods supplied or services rendered by the payee. A person receiving or entitled to receive a payment from which income tax is required to be withheld is a withholdee while a person required to withhold income tax from a payment made to a withholdee is referred to as the Withholding Agent.

Payment subject to Withholding Tax.

Withholding tax applies to specific payments including payment that is to be included in calculating the chargeable income of an employee from the employment, payment of investment return including dividend, interest, natural resource payment, rent or royalty, payment in respect to service fee and contract payments and payment in respect to supply of goods to the government and its institutions.