This week on our social media handles we’ve been talking about tax and therefore today we have decided to wrap up the week’s talk by answering some of the questions we have received as well have everything we’ve been sharing as snippets in one place, we will also define some the terms that are in relation to tax and taxation.

Tax is a compulsory financial charge or levy obligated on a taxpayer by its ruling government using one of its parastatals, arm of government, or organization, this levy is then used by the government to fund its expenditures be it public development and or administrative costs, failure to declare and pay this tax on a time or evasion to pay all together is a punishable crime by law.

Taxation on the other side is the process of implementing the tax by the government body charged with that obligation.

Tax deferment, you might have encountered or heard something called deferred tax and wondered what that is, here is what it means in the simplest terms, deferred tax is the process of delaying to pay taxes to a determined future date, however, it is important to note that some taxes can be deferred indefinitely, the main reason why a taxpayer may want to defer a tax payment is that some taxes can be taxed at a lower tax rate in the future and hence allowing the taxpayer to tap onto that benefit.

There are majorly two types of tax i.e the Direct tax and the Indirect tax:

Direct Tax: as the word sounds this tax that is not hidden to the taxpayers’ knowledge you pay this taxation knowing very well what you are paying, examples of this tax include, corporate tax, wealth tax

Indirect tax: these are the taxes that are charged on products and incorporated while generating the product price hence the purchaser of the product sometimes may not be aware of the exact tax charged as they pay as a lump sum amount, however, it is mostly broken down on the receipt issued, this includes, value-added tax, hospitality levy, the service charge tax

Challenges faced by Taxpayers include

In our opinion, the biggest challenge faced by taxpayers is ignorance, by this we mean most people are not aware of the terms and conditions of the taxes that they have on their obligation, and hence they some are vulnerable to the exploitation of a few mischievous tax agents that might decide to capitalize on this is, to this our best advice is to hire a tax person to guide on what is required of you and that way you will have covered that vulnerability and safeguarded yourself and or your organization.

The other major challenge would be a failure by taxpayers to declare and pay their taxes this in some instances ends up making them get penalties on the undeclared and unpaid taxes, the solution to this is to get to understand the tax obligation that you have as a taxpayer when it falls due and ensure to declare and pay on time or better still delegate it to a tax agent who will be in charge of ensuring that this is handled on time,

Challenges faced by tax authorities

Tax evasion cases, in most cases, happen when the taxpayers don’t appreciate the value of the taxes they pay and, in their ignorance, decide not to declare and not to pay taxes anymore, to this the best solution be to show the taxpayers value for their money and they will be more willing to pay the taxes without much hesitation.

Sometimes the tax authorities may find themselves in a catch 22 in that they have ideas of how to be more efficient but they need more funds than they have to implement the ideas but then the government needs them to collect more money so as to get the allocation they need.

Technological inadequacy is another major challenge faced by the tax authorities, the solution to this is to accept there is a problem and then now set up a plan and a budget to tackle it by adopting more robust and advanced technology.

Taxpayers’ compliance burden is still another challenge, the solution to this is to empower the taxpayers by educating them of the tax obligations due to them and how they can declare and pay for them, and the benefits they accrue by doing so.

Benefits of being tax compliant

As a taxpayer you want to be tax compliant as it has some benefits to you, especially if you are in business or you are a director to the company, then you want to ensure you file your taxes and the company to which you are director also files taxes correctly

The benefit to the taxpayer who is business or is a director of filing correct taxes is that is kept in good standing as a citizen as hence you have a chance of also being nominated to sit in other boards which is a plus to your CV.

The benefit to the corporate entity is that one you can claim the allowable expenses incurred on the course of raising the income as well as the losses incurred, also whether the company suffered a loss or paid any taxes filing the correct audited accounts other than the NIL return is an advantage as it shows the business was operational though a loss was incurred while a NIL return shows the business was not functional.

The benefit to the taxpayer, in general, is that with efficient tax payment then you can hold the government accountable when it does not deliver efficient services, and also you will proud while utilizing any public resource as you know full well that those are your taxes being put to use.

MA Financial Services Consultants

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