Four tax saving strategies for investors in 2023

Tax planning is a key factor to any investor who desires to achieve maximum tax efficiency as it aids and allows the investor to optimize their disposable income as well as free up cash that is much needed for reinvestment and diversification into other projects.

The hard unprecedented economic times call for investors to deploy all the available tax planning strategies to save on taxes payable to the government -without going the way of evasion which is a criminal offence. 

Tax planning allows you to reduce your burden of tax within the law in what is popularly referred to as tax avoidance.

Below are some of the strategies that you can apply to save on your taxes;

1. Investment in Government Infrastructure Bonds -which are tax-free.                       

The Government from time to time issues Infrastructure Bonds for investment by members of the public in its bid to finance its projects. Not only are the bonds tax-free, but they are also risk-free which means that the return from the investment is sure or guaranteed unlike other forms of investment where the return may be uncertain.                                                                             

What makes this form of investment so attractive is that the interest income earned from the bonds is not subjected to the standard 15% withholding tax that is subjected to other bonds and instruments. In turn, this shields the investor from tax and hence enables them to save for other prudent cash use.

2. Pension saving with a registered retirement benefits scheme.

An individual contribution to a registered pension scheme in Kenya can save you a taxable income of up to Ksh.20,000 per month which can sequel to Ksh.240,000 per year. The contribution is an allowable tax deduction against the taxable income.

For Example; - If you earn an income of Ksh.100,000 and you contribute Ksh.20,000 to a registered pension scheme, your taxable income will be Ksh.80,000kshs and not Ksh.100,000 hence saving on tax.

3. Investing in an insurance policy. 

The government, the tax laws, allows for insurance relief on the premium paid on a life or education policy whose maturity is at least 10 years. This option gives all investors a tax relief equal to 15% of the premiums they pay for their insurance cover up to a maximum of Ksh.5,000 per month and Ksh.60,000 per year.

As a result of this, investors can benefit by maximizing on their insurance relief benefit to reduce their tax payable to the maximum provision of Ksh.60,000 per annum.

4. Savings in House Ownership Savings Plan.

The tax laws allow for a deduction of a maximum of Ksh.4,000 per month or Ksh.48,000 per year on the taxable income if the investor chooses to save in the House Ownership Savings plan for a house. This would mean that per year, if in this plan, the investor’s Ksh.48,000 will not be subjected to tax. In hindsight, this amount may seem low per month but from a yearly perspective, Ksh.48,000 can do a lot.

In addition to this, interest earned under this plan is tax free up to Ksh.3 million hence quite an attractive deal to investors who desire to save on tax on any income earned.