Understanding tax compliance and its impact on businesses

The global trend toward stronger tax enforcement has increased the need to focus on mitigating tax compliance risks. Businesses must not only stay on top of returns, audits and tax disputes, but also focus on understanding and responding to regulatory changes quickly.

Business owners, no matter how small or large, are required to follow the tax laws of the country they belong to (and sometimes of other countries too). These laws govern the income reporting requirements, calculation of taxes, payment of taxes, and procedural requirements for it. Tax laws tend to be quite complicated for businesses, especially in countries with a large tax code, and to make things trickier, they keep on changing from time to time.

We get that small business owners who have recently started out their venture tend to ignore tax compliance until the end of the tax deadline is due simply because they have the pressure of running a profitable business. But postponing tax compliance to the year-end causes serious difficulties for small businesses especially when their documents and books aren’t properly kept organized.

It is very important for taxpayers not only to comply but also to know their tax obligations. Otherwise, they will suffer the devastating consequences of non-compliance and contribute to their self-destruction.

Interest and penalties alone on missed tax payments can cost taxpayers hundreds of millions of shillings. Mere failure or refusal to issue receipts and invoices, when required, could subject them to criminal prosecution. Unlawful pursuit of business and willful failure to pay will lead them to jail. Failure to file returns and report income and transactions that are subject to tax is likewise punishable by law.

Ignorance will not save taxpayers from the destructive power of taxation, and more so for their negligence and evasion in paying taxes. The defense is always to come with clean hands. The law and our courts will protect them only if they do.