Smart and sustainable businesses don’t evade taxes; they plan for them!
Tax strategies should protect your profits while keeping you compliant. One of the most misunderstood concepts among taxpayers especially small business owners and employees is the difference between tax evasion and tax avoidance.
Let’s start there.
Tax Avoidance Vs Tax Evasion: Know the Difference
✔Tax evasion is illegal. It involves deliberately underreporting income, over reporting expenses, or refusing to file taxes altogether. It can lead to heavy penalties, audits, and legal trouble.
✔Tax avoidance, on the other hand, is completely legal. It means using existing tax laws and incentives to minimize the amount of tax you pay. And yes it’s your right as a taxpayer.
Think of tax avoidance as smart financial planning. It’s about making use of deductions, reliefs, and structures that already exist in Kenyan tax law to reduce your tax liability.
Let’s look at four legal and practical ways you can reduce your taxes in Kenya.
1. Claim All Available Tax Reliefs (If You’re on PAYE)
If you're formally employed and taxes are deducted from your payslip every month, you may be eligible for certain tax reliefs. These are legal deductions from your taxable income that can significantly reduce your tax burden:
✔Pension Contributions – Save for retirement while reducing taxes.
✔Home Ownership Savings Plan (HOSP) – Invest in your first home and enjoy relief.
✔Mortgage Interest Relief – Instead of taking a loan, consider a mortgage, which offers relief.
✔Insurance Premiums – Life insurance policies with approved providers attract relief.
✔Disability Relief – Apply for a tax exemption certificate via the iTax portal if you qualify.
All these items are subtracted from your gross income before your taxes are calculated, so you're taxed on a smaller amount.
2. Deduct Business Expenses (If You're in Business or Freelancing)
Running a business means you’ll inevitably incur costs. Good news? Many of those costs are tax-deductible—as long as they are directly related to the business and backed by valid receipts.
Some examples include:
✔Office supplies and printing costs
✔Internet and mobile data used for work
✔Meals and entertainment for clients
✔Travel and accommodation related to business
Pro tip: Keep accurate, well-organized receipts and make sure every expense can be justified as business-related. This can dramatically reduce your taxable profit.
3. Use the Home Office Deduction
Do you work from home? You could be eligible to deduct part of your rent or utility costs by claiming a home office deduction.
Here’s how it works:
✔Measure the square footage of your dedicated workspace
✔Divide that by the total area of your house
✔Multiply that fraction by your rent or utility bills
Let’s say your office takes up 20% of your home. You can deduct 20% of your rent as a business expense.
Note: The space must be used exclusively for work. If it's shared with guests or family, it doesn't qualify.
4. Structure Yourself as a Business Instead of Being Employed
Employees under PAYE pay up to 30% in income tax. But small businesses that qualify under the turnover tax regime pay just 3% of gross income no deductions needed.
If you're a freelancer, consultant, or self-employed professional, consider registering a business or company. You might:
✔Pay less tax under turnover tax (if your gross income is below Ksh 5 million annually)
✔Have more flexibility to structure your income and expenses
At Makabe Consulting, we help you evaluate whether turnover tax or income tax is best for your situation.
Conclusion: Plan, Don’t Evade
While tax avoidance may be seen as controversial by some, it is a legitimate strategy especially when government accountability is in question and small businesses are working hard to stay afloat.
But remember:
👉 There’s a thin line between tax avoidance and tax evasion.
👉 Always keep proper documentation and ensure your strategies are legally sound.
👉 When in doubt, consult a professional.
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