Don’t let your employer to fill your tax returns form!

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

14 June 2009

It is that time of the year again. All taxpayers have to file their tax returns with the Kenya Revenue Authority before the end of this month – just over two weeks from now. Many people find this exercise a bother and a waste of time; after all, “My taxes are collected at source before I get my salary. Why should I tell KRA how much I have paid them yet they know?”

Well, that’s a good question, but it misses the point. True; your employer has been deducting your taxes and remitting to KRA every month, but are you sure that the figure indicated on your payslip was the actual amount given to the taxman? This is one of the main reasons that KRA wants each taxpayer to fill his/her own return personally; that is, don’t let your employer do it for you!

Let me illustrate with an example: Suppose you earned Sh20,000 per month from January to December last year. Your gross tax per month should have been calculated as follows: 10 percent on the first Sh10,164 (equals Sh1,016.40) and then 15 percent on the remaining Sh9,836 (equals Sh1,475.40).

This makes a total of Sh2,491.80. From this amount, you automatically qualify for a personal relief of Sh1,162.00, therefore the tax payable was Sh1,329.80 per month.

Now, the issue of the automatic personal relief causes some confusion, the question being: “What have I done to deserve it?” The logic behind it is to ensure that low income earners do not pay any tax. Instead of simply exempting them from taxation (and again raising the question of what they have done to deserve the exemption), the government taxes everybody and then gives an equal relief to everyone – that’s fair, isn’t it?

Then if the gross tax is less than the personal relief, you don’t pay anything. This is the case for anyone earning less than Sh10,971 per month…but they must still file a return showing that they were indeed not supposed to pay anything!

Now, suppose your employer is dishonest and indicates in the staff records that your salary is Sh15,000. In that case, their calculation will yield a tax of Sh579.80 and this is the figure they will remit to KRA. However, they will give you a payslip showing Sh20,000 as gross and Sh1,329.80 as taxes. This deceitful employer will therefore pocket Sh750 every month.

If you now go ahead and let the employer fill-up the tax return form for you and you just sign it blindly (some people even sign blank forms!), you defeat the cross-checking system and nobody will ever discover that Sh750 was stolen each month.

A second reason why you need to fill the tax return is that it helps you discover if you have been over taxed. This often happens when you get a pay rise or when you lose a job halfway through the year. It is not the fault of your employer but a consequence of the administration of tax: taxes are calculated on annual income but the payments are made on monthly basis.

I will explain how this happens in more detail next week.