Download Navigating the Complexities of International Law: A Comprehensive Analysis of Principles, and more Assignments International Law in PDF only on Docsity! GROUP 4 TAXATION LAW TAXATION OF COOPERATIVES. TAX RATES APPLICABLE IN COOPERATIVES. Co-operatives are classified as primary societies and are governed by Section 19A of the Income Tax Act (Cap 470), the Co-operatives Act (Cap 490) and are listed in the 4 th Schedule of the Income Tax Act. For purposes of taxation, co-operative societies have been classified into: a) Cooperatives registered under the Companies Act e.g KCC, KPU etc b) Cooperatives registered under the Cooperatives Act 1997 further classified into; i. Primary societies e.g marketing societies ii. Apex union societies e.g District Co-op Unions iii. Sacco societies. COOPERATIVES REGISTERED UNDER THE COMPANIES ACT These are treated and taxed like any other corporate entity and as such, they are taxed at 30% on profits realized and taxes paid as a normal business entity. All income for a particular year of income is disclosed. The expenses wholly and exclusively incurred in realizing the income are allowed and deducted against the income to realize the profit which is then taxed using the rate above. COOPERATIVES UNDER THE CO-OPERATIVES ACT 1997 NOTE; Under Section 92 of the Co-operative Societies Act, a cooperative can be exempted from the provisions of the Co-operative Act based on the nature of business of the entity, number of members, manner in which the business is conducted, body corporate carrying business for its own profit and extent of transaction with non-members. a) Taxation of Apex and Union Societies. Apex societies- These are societies registered under this Act and comprise of two or more union societies. Union societies- These are registered under the Co-operatives Act and the comprise of two or more primary societies. Taxation of apex and union societies is through a determination of taxable income arrived at by comparing a specified source of income against allowable deductions for the particular source. Dividends as well as bonuses are treated as allowable deductions against total taxable income. Consequently, 100% of total income can be paid as dividends to bonuses leaving the taxman with Nil income to tax. In cases where dividends bonuses do not comprise 100% of total taxable income, the remaining amount is then subjected to corporate tax. b) Taxation of Primary Cooperative Societies Computation of taxable income is similar to that if union and apex societies but the dividends and bonuses payable cannot exceed 80% of total income. This means the taxman is assured of 20% of total income for tax purposes which is subjected to corporate tax at a rate of 30%. For dividends and bonuses to be allowed, they must have been: i. Paid out to members ii. Approved at the AGM iii. Authorized by the Commissioner for Cooperatives. Dividends could be cash, stock, redeemable preference shares, debentures, or payments during winding up. They are classified into; a) Non-qualifying dividends- these are paid by a designated cooperative society. They are taxed under Section 19A- S2 and the withholding tax is not final. The rate is 5% for residents and 10% for non-residents. b) Exempt dividends- they are paid to exempt persons listed on the 1st Schedule of the Income Tax Act of those received by a resident company controlling over 12.5% of a company. This is under Section 7(2) of the Income Tax Act. c) Qualifying dividends- paid by SACCOs and the withholding tax is final. Since the main income is not taxable, the administrative and such other expenses are not considered as allowable deductions against other incomes i.e interest income from members is exempt hence expenses are not allowable. NOTE; Other income tax is levied at 30% of 50% of income. The other incomes referred to here include rents, dividends, capital gains, commissions from money transfer services, insurance agency & housing schemes to members. These incomes are taxed under specified sources of income. Summarily; The current corporate tax rate applicable in Kenya is 30% in the case of resident corporations (i.e. limited liability companies). A non-resident company with a permanent establishment in Kenya is taxed at 37.5%. The tax is computed on the taxable income of a company, having deducted expenses which are wholly and exclusively incurred in the production of income. Other applicable taxes are: Turnover tax (TOT) at 1% for micro, small and medium enterprises whose annual turnover does not exceed KES 50,000 per annum. 1% minimum tax for all businesses whether making profits or not. Those whose tax from profits exceed the computed minimum tax will not be liable for this tax. Capital gains tax- 5% of net gain. For any other businesses owned by individuals directly or through transparent entities e.g. partnerships, the individuals are taxed on individual tax rates. The individual tax rates are based on a graduated scale ranging from 10% to 30% (see under individual taxation). Monthly income in excess of Ksh 57,333 earned by an individual would be subject to tax at the highest bracket on the graduated scale (i.e.30%). All the Non resident entities are taxed through withholding tax regime. TAX RETURNS AND PAYMENTS. Each corporate entity is required to file a self assessment tax return (SAR) together with a set of audited financial statements within 6 months after the end of the accounting period . The final tax for a year is payable not later than four months after the end of accounting period. EXPORT PROCESSING ZONES ENTERPRISE. EPZ’s are exempt from corporate tax during the first 10 years. Licensing of an EPZ shall not include activities that are commercial in nature but manufacturing. The corporate tax rate is 25% commencing from the 11th year. However, employees and directors, other than non-residents, of an EPZ enterprise are liable to personal income tax.
