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PwC: The earlier the better to master minimum tax provisions

By James Wanzala | March 15th 2021
By James Wanzala | March 15th 2021
KRA Head Office in Nairobi (PHOTO: FILE)

NAIROBI, KENYA: PwC Tax experts have appealed to Kenya businesses to acquaint themselves with recently introduced tax initiatives by the government to avoid costly penalties due to non-compliance.

They said this during a virtual webcast on Thursday called, 'Demystifying Minimum Tax Provisions,' which discussed the practical aspects of the minimum tax provisions and how they would impact businesses.

According to Edna Gitachu, Senior Manager and Tax Policy Specialist at PwC, at first glance, minimum tax may seem easy to implement.

“However, an in-depth analysis of the legal provisions reveals some intricacies and potential adverse business impacts. Some of the grey areas that taxpayers are currently grappling with include the ability to utilise existing tax incentives, historical tax losses and tax credits. The commencement date for entities with non-December financial year ends is also not quite clear," said Ms Gitachu.

She added: “There are also accounting considerations with regards to revenue recognition and the interaction of the tax with the existing accounting standards. Given the challenges currently facing taxpayers, tax policymakers must make the necessary amendments to ensure that minimum tax is easily adopted with minimal adverse impact to businesses.”

According to Akinyemi Awodumila, Associate Director and Accounting Advisory Specialist at PwC, it is important to point out that the concept of a minimum tax is not unique to Kenya and that many countries in the world such as South Korea have a similar tax.

“In Africa, countries such as Nigeria and Tanzania have introduced a minimum tax liability in their tax codes. However, each of these countries has incorporated clauses to address certain business concerns on such a tax,” said Awodumila.

The Government, he said could draw some lessons from international best practices and incorporate them in the local tax code, such as by reducing the rate of minimum tax as well as revising the tax base from gross turnover to an alternative base such as Earnings Before Interest and Tax (EBIT).

Further, in a bid to enhance Kenya’s attractiveness as a hub in Sub-Saharan Africa and reduce the strain on startups and financially constrained entities, he said minimum tax could be structured as an advance tax to be applied in future periods when businesses start making taxable profits.

 “ In the meantime, businesses should familiarise themselves with the minimum tax and comply with its provisions to avoid costly penalties due to non-compliance,” he said.

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