Taxes play a significant role in the government’s revenue generation efforts and contribute to funding public services and development projects.
Taxation is a means of income redistribution.
Thence, it is my hope that your government won’t tax you by the time you are done reading this article.
Government’s tax base includes Income Tax, such as Corporation Tax, Pay As You Earn, Withholding Tax, Advance Tax, and Installment Tax.
Additionally, there are Rental Income Tax, Value Added Tax, Excise Duty, Turnover Tax, Capital Gains Tax, Agency Revenue (comprising Stamp Duty and Betting Tax) and Digital Services Tax.
According to tax consultant Dr Francis Omondi, deposit taxes are levied on the interest income earned from deposits held in banks and other deposit taking financial institutions. Interest income tax is imposed on the interest earned by individuals and businesses on their deposits, savings and fixed deposits.
“Certain categories of interest income may be exempt from taxation, such as interest earned on government securities like Treasury Bills and Bonds,” notes Dr Omondi.
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Withholding Taxes
Financial institutions companies and partnerships making payment are required by law to deduct and remit the withholding tax on interest paid to depositors to the government.
Withholding tax is also deductible from certain classes of income at the point of making a payment, to non-employees, whether resident or non-resident, which is accrued in or was derived from any country.
Withholding tax is deducted from incomes such as Interest and deemed interest, Dividends, Royalties, Management or professional fees (including consultancy, legal, agency or contractual fees), Commissions, Pensions, and Rent received by non-residents as at source.
Moreover, pension taxes refer to the taxes imposed on various aspects of pension funds and retirement benefits.
These taxes play a role in ensuring the sustainability of the pension system and contributing to government revenue.
According to Janet Watoro of the National Taxation Association, Digital Service Tax (DST) is a tax levied on companies that provide digital services to users that is becoming increasingly popular as countries seek to generate revenue from the growing digital economy.
Her colleague Allan Miheso reveals that Kenya, Uganda, and Tanzania are all early adopters of DST and their experiences will be closely watched by other countries.
Digital Service Tax (DST)
Kenya introduced DST in 2020, Uganda in 2023, and Tanzania in 2022.
Also, the tax rates in these countries are 1.5%, 5%, and 2%, respectively. DST is typically levied on companies that provide digital services such as online advertising, streaming services, e-commerce platforms, and social media platforms.
DST is a controversial tax, but it is likely to become more common in the coming years as countries seek to generate revenue from the digital economy and remain a part of the global tax landscape for some time to come.
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In a nutshell, taxation is both offline and online.
However, “While ordinary people are making daily sacrifices on essentials like food, the super-rich have outdone even their wildest dreams. Just two years in, this decade is shaping up to be the best yet for billionaires —a roaring ‘20s boom for the world’s richest,” believes Gabriela Bucher, Executive Director of Oxfam International.
Oxfarm calculated that the majority of taxes that an ordinary citizen pays are on the income from work (both salaried and self-employed) and goods and services.
Rich people also pay Personal Income Tax on their work income and on consumption, but both of these add up to a smaller proportion of their income because of all their other income streams.
