Essay On Corporate Tax In Kenya

Corporate tax in Kenya is set at a flat rate of 30% of the profit for local companies and 37.5% for foreign companies.

Advantages:

1. Source of revenue for the government

Corporation tax is a source of revenue for the government which is used towards national debt or public services. The increase in the collection of tax increases the government revenue.

2. It is levied after businesses deduct allowable expenses from their profits. This is unlike with other taxes.

3. It is equitable

Corporations benefit from a country’s policies and services and should thus be taxed for benefitting from them.

Disadvantages:

1. It presents a double taxation concept. For example, an employee that receives dividends as part of a salary, or a retirement package must also pay taxes on those dividends.

2. It cuts down on the ‘take home amount”. i.e. it reduces the profits.

3. It is easier to evade. Manipulation of figures is possible.

For example, If a company has operations both in Kenya and outside Kenya, the company would only be taxed on the income considered to have been accrued and derived in the country. Such a system if well designed would result to companies ploughing back their foreign generated profits to Kenya and also encourage them to invest and expand operations throughout the world.

However, a challenge with territorial corporate income taxes is that they can be complex. The goal of a territorial tax system is to tax companies based on the location of their production, which is challenging in today’s highly globalized world. This is because production processes stretch across numerous jurisdictions and can include transactions that are difficult to price. Companies with multinational production processes take deductions and report revenues throughout the world to allocate their profits. As such, it would be difficult to determine exactly how much profit should be taxed in a in the