by: Rorbeta Likhang
There is one reason and one reason only why we get into business, and that is profitability, money. So it is rather saddening as an entrepreneur when a big chunk of your money, about 25% is taken up by the Lesotho Revenue Authority (LRA). Believe me I understand exactly how you feel. But unfortunately we need to pay tax, unless you want to end up closing down your company because of a heavy tax liability or being fined therefore paying more than what is already a lot on tax through the additional fines or worse imprisonment. Maybe we need to look into why exactly do we need to pay tax. But before that we need to understand that LRA is simply a body that collect taxes on behalf of the government, it is not a government body nor is a private owned business aimed at taking our hard earned money but simply an agent working on behalf of a principal, the government to collect taxes.
I have discovered the reason we try evade tax boils down to two reasons 1. We don’t know why we are paying tax and 2, we do not plan for tax.
Lets look at why we pay taxes.
In a nutshell taxes are levies imposed on a person by the government as ways of collecting funds for the countries development and administration.
Taxes serve 3 major purposes
- They contribute the government’s budget
The government funds its expenditure through taxes collected. It is through that budget that, infrastructure is improved and services rendered.
- The distribution of wealth
Tax is levied on individuals differently, people with higher income pay more tax than those with lower incomes. This is so as to lessen the gap between high income earners and low income earners. For example as much as we may all pay tax, a person earning M3,000 will pay less tax as compared to one earning M30,000. It would be unfair if they paid the same tax, suppose M300 each, it would be rather unfair to the one making only M3,000 as it would lessen their economic status significantly as opposed to the person earning higher.
- Social responsibility
Commodities like alcohol and tobacco products are taxed higher than other products such as water and electricity which is a basic need so as to discourage the use of tobacco and alcohol and also to lessen the cost of essentials.
Therefore we need to start looking at taxes and feeling proud as entrepreneurs to be contributing to the county’s economic status.
As I said the second reason we want to evade tax is because we fail to plan for tax.
Of course when you budget you only think of costs that add value to the company and contribute in the generation of profit, however since taxes are cost of trading, it is important that we plan for such. Remember, only loss making companies do not pay taxes, therefor paying taxes is a sign of a healthy business. Tax planning is about evaluating not only the cost of every decision you make but also the tax implication. So your knowledge of tax will help you make proper decisions and help you avoid tax rather than evade tax.
We will get into issues of tax planning in detail as we learn more about tax in future chapters, for now, remember paying tax is a sign of a healthy company.