Taxes are a mandatory contributions levied on individuals by a certain gorvement entaity – It can be a local entity or a national gorvement entity. In kenya local taxes are collected by the county gorvement and other taxes are collected by the national gorvement at a country level. It is an obligation of every citizen employed or running a business to pay some tax to the gorvement in every country in the world.
Why does the gorvement collect taxes?
Taxes are the main source of revenue for most gorvenments. The money collected as tax by yhe gorvenment is then spent by the government to improve and maintain public infrastructures, including the roads we travel on, and fund public services – such as schools, emergency services and welfare programs.
According, to World Bank, collecting taxes and fees is the most effective way for countries to generate public revenues that makes it possible to finance investments in human capital, infrastructure and the provisions of services to citizens and business.
How to reduce your taxable income.
You can legally reduce your taxable income by using the following options:
1. Mortage relief
Mortage relief applies to all loans taken to buy or refurbish properties from banks, saccos and insurance companies. It among the efforts of the government to encourage mortages, allowing more citizens to own a home. If you can’t afford to get a mortage under the currrent interest rates you are entitled to an interest deduction of up-to a maximumo f Ksh300,000.
Saving in a registered retirement scheme enables your to lower your tax burden. After all the end you will manage to get back all your retirement savings and returns. Pension contributions are deducted from your income before income tax is computed on it, so you manage to get a relief on the amount immediately at your highest rate of tax.
3. House Ownership Savings Plan
The home ownership plan helps you to reduce your taxable income by about Ksh 4000 per month. The gorvement set this plan to enable many people to save towards purchasing a home. This relief cut the pay that is to be taxed up-to Ksh8,000 monthly or 96000 annually, which helps you to save up to Ksh2500.
4. Life insurance
This one helps you to transfer a policy’s death benefit income-tax-free to benefeciaries. This means a portion of the death benefit from a life insurance policy can be used to pay any taxes that maybe due on your estate.
For more Knowledge on how to reduce your taxable income, watch Dr Kingori on youtube as she discuss on how to cut on your taxable income.