The Pay As You Earn (PAYE) tax year-end is looming in most East African territories, and governments are clamping down on non-compliance among businesses and individual taxpayers as they strive to raise more funding for public spending. That means businesses must ensure that their payrolls are fully compliant with the laws and regulations around collection of PAYE tax.
Commenting on compliance in Kenya and Tanzania, Nikki Summers, Regional Director for Sage in East Africa, says that the tax collection authorities in both countries are scrutinising more closely whether employers are complying with their tax obligations.
With a tax collection shortfall of Sh40 billion in the first four months of the 2017/18 fiscal year—which ends in July next year—the Kenya Revenue Authority can be expected to take tough line on enforcement in the months to come. What’s more, the Treasury is currently reviewing the Income Tax Act with a view to increasing revenue, improving tax administration and sealing tax loopholes.
In Tanzania, PAYE accounts for about 17% of gross tax, accounting for the biggest share of tax revenues. This is due to increased focus on controlling of revenue leakages in recent years.
“Without improving tax collection, East African countries will not be able to effectively finance the building of infrastructure and the provision of public services. We are seeing Tanzanian and Kenyan tax authorities take a more robust approach to registering tax payers and enforcing compliance to help the governments meet their tax collection targets.”
Nikki Summers, Regional Director Sage, East Africa
Says Summers: “Without improving tax collection, East African countries will not be able to effectively finance the building of infrastructure and the provision of public services. We are seeing Tanzanian and Kenyan tax authorities take a more robust approach to registering tax payers and enforcing compliance to help the governments meet their tax collection targets.”
This means that businesses must ensure that they declare the correct earnings for all employees and that they include the right taxes and statutory deductions in payroll calculations. It has become increasingly important to ensure that annual returns are filed and submitted promptly and accurately to the relevant tax authorities.
“Failing to comply – whether through deliberate evasion, late payment of payroll taxes underpayment as a result of a miscalculation –could cost your business dearly,” says Summers. “You could face large fines and penalty interest for underpayment of taxes and statutory deductions.”
Manual processes are no longer good enough
Because compliance is complex and the risks of non-compliance are high, East African businesses can no longer rely on spreadsheets and other manual methods to do their calculations and file returns. Automated solutions are becoming more essential for keeping reliable records and performing accurate payroll calculations.
Payroll automation software—with solutions available for businesses from start-ups to mid-sized companies and larger enterprises—takes care of calculating the complex formulas for the various deductions, generating compliance reports, and keeping accurate records. That makes it easier to perform accurate calculations, file submissions on time and generate reports and electronic payslips.
Getting ready for changing laws and regulations
Automation makes it easier to keep track of changes to tax regulations that impact on payroll tax calculations and various changes in legislation. The software is constantly updated to align with the latest tax laws and tables, so one needn’t to update spreadsheet formulas or learn to make new manual calculations when changes are made.
“Business builders don’t go into business because they love filing tax returns,” says Summers. “Using automated payroll software can help them save dozens of hours a year because they no longer need to worry about doing manual calculations or returns. Plus, they can rest easy knowing that automation reduces the possibility of human error. Payroll software takes the pain out of compliance, allowing business owners to focus on business strategy, customers, and employee engagement rather than on red-tape.”
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