Tax Intelligence: Empowering Individuals and Businesses for Success
By Lillian Njovu and Choolwe Chileshe.
Understanding taxes is crucial for individuals and businesses to fulfill their obligations to the government. By definition, taxes are mandatory contributions levied on individuals or corporations by the government, which can be at the local, regional, or national level. Taxes are statutory levies imposed on businesses, corporations, and individuals. It is important for both small businesses and CEOs to comprehend the implications and types of taxes their business needs to pay.
Here are key points to understand about taxes:
Tax Bracket: Tax planning begins with understanding your tax bracket, which applies to both individuals and businesses. Different tax brackets have varying tax rates and requirements. Determine the tax bracket your business falls into, such as turnover tax, value-added tax (VAT), income tax, excise duty, or withholding tax. Knowing your tax bracket helps you plan and budget for tax payments. If you are unsure which tax bracket applies to you, it is advisable to seek guidance from the relevant tax authority, such as the Zambia Revenue Authority (ZRA).
In Zambia, having a T-pin is now mandatory for individuals and businesses. This means that businesses submitting Pay-As-You-Earn (PAYE) are no longer required to file returns based on National Registration Cards (NRCs), but rather using the T-pin as the tax identification number. Registering for a T-pin allows ZRA to track all income earned by your business. Therefore, obtaining a T-pin should be the first step to understanding your business's tax obligations and the applicable tax bracket.
Tax Deductions: Once you know your tax bracket, it is essential to understand the available tax deductions within that bracket. Tax deductions reduce your final tax liability. For example, if your business falls into the turnover tax bracket, you may not have any deductions as it is considered a final tax. However, if your business is registered for VAT and earns an annual turnover of K800,000 and above, you can claim deductions for expenses that have VAT. Different tax types have specific sets of deductions, so it is important to familiarize yourself with them.
Tracking Income and Expenses: To accurately report and pay taxes, it is crucial to track your business's income and expenses. Income is subject to taxation, while expenses reduce your tax liability. Keep a record of all invoices, sales, purchases, and expenses. Utilize a digital bookkeeping and invoicing system to automate numbering and tracking. TUMENY is an example of a digital platform that offers a digital bookkeeping and invoicing system suitable for small and medium enterprises. It can help generate reports, send invoices, track sales and expenses, and provide essential information for tax purposes. Leveraging digital tools simplifies tax management and minimizes the risk of penalties.
Banking and Statements: Maintaining separate business and personal bank accounts is crucial for auditing purposes. ZRA may request your bank statements to cross-check the income declared on your tax returns. Keeping personal and business finances separate ensures transparency and avoids confusion. Digital bookkeeping platforms facilitate this separation, making it easier for busy CEOs and entrepreneurs to manage their finances effectively. Besides invoices and purchases, it is also important to keep records of other financial documents such as travel expenses, transportation costs, entertainment expenses, gifts, and details of assets. Additionally, maintain records related to employment taxes, including contracts and wage information for employees.
Deadlines and Compliance: Understand the tax deadlines associated with your tax bracket and type. Different taxes have varying due dates for filing returns and making payments. Non-compliance can result in penalties, so it is crucial to stay informed and fulfill your tax obligations on time. Stay updated with the latest tax laws and regulations, and consult with the relevant tax authority or seek professional advice to ensure compliance.
By understanding your tax bracket, deductions, tracking income and expenses, and meeting deadlines, you can effectively plan and manage your tax obligations. Embrace digital solutions to simplify the process and make it more convenient. Remember to seek guidance from the appropriate tax authority or consult professionals to ensure compliance with local tax laws and regulations.