It is said that the only constant in life is death and taxes. While you have very little control over the former, there are several legal avenues you can use to reduce your tax obligation. The government offers certain tax incentives to individuals and businesses, but many do not claim or even know about reliefs they are entitled to. In this article, we explore some of them.
1. Invest
To encourage more people to invest, the government offers tax breaks to investors. These vary, depending on the actual investment. Keep in mind that some investments are subject to a withholding tax, thus invest in tax-free instruments or products that give you capital gains, as we do not currently have a capital gains tax.
2. Save for Retirement
Yes, the government will give you some tax relief if you are saving for retirement. You get to kill two birds with one stone. Your retirement savings of up to Kshs 20,000 a month or Kshs 240,000 a year are tax exempt. The only catch is that these savings must be managed by a pension fund that is licensed by the Retirement Benefits Authority (RBA).
3. Save to buy a home
If you are working towards buying your own home, you also stand to benefit from a lower tax burden. You can claim this in a couple of ways. The first is by signing up for a Home Ownership Savings Plan (HOSP), which will let you reduce your taxable income by Kshs 4,000 each month. The other is through mortgage relief of up to Kshs 25,000 monthly, which is offered to individuals that have mortgages.
4. Get insurance
As a Kenyan, you can get tax relief of up to 15% of the amount you pay for a life insurance cover, up to a maximum of Kshs 5,000 monthly. Education policies that will mature after 10 years also qualify for this relief.
In conclusion, paying your taxes does not have to feel like a funeral. Take advantage of the various reliefs offered by the government to lighten your load. Notice that aside from having to pay fewer taxes, most of these reliefs also come with other considerable benefits, including earning a return from your investment, savings for when you retire or to buy property, and protection that comes with being insured.