~ by Nehal S
Executive Summary
The Finance Bill for Kenya 2024 has caused headlines internationally as Gen Z are taking to the streets in protest. Although some parts of the legislation have been dropped given public pressure, such as the tax on bread and motor vehicles, but there are parts that are remaining andwill cause companies to make some tough financial and operational decisions. For example,pension contribution is increasing by KES 10,000 per person. If you have a staff of 100 people, this means an additional KES 1,000,000 that you need to cut from somewhere in your budget. It all adds up quite fast.
This article discusses how a Fractional/Part-time CFO can help you with plan against punitive/unplanned tax legislation.
Legislation Financial Impact Roadmap
Step 1 – Understand the Damage
Hire a fractional tax advisor to help you understand what aspects of the updated Finance Bill apply to your company. Although CFOs are able to implement tax changes within the company’s larger financial infrastructure, they should not be left alone to decipher tax legislation as something could be missed.
Step 2 – Budget Review & Scenarios
Your CFO will then start a budget review and apply the necessary changes based on taxes. After a feasibility study, there could be several budget scenarios that the CFO will recommend – for example, scenario 1 could be an increase in prices of goods and services to cover the additional taxes, scenario 2 could be laying off non-essential staff (which can also come at a cost), and scenario 3 could be a combination of the two.
Step 3 – Board Approval
Once management decides which scenario to go with, board approval will be required as several changes will result as a consequence. The CFO will present the scenario to the Board as well as the implementation plan.
Step 4 – Sensitization Workshops among Impacted Staff
Once the Board approves the plan, the CFO can organize a workshop to let impacted staff members or heads of departments know what is in store.
Step 5 – Implementation
Implementation will require careful planning and often times a phased approach. Your CFO can lead this and manage this change.
Step 6 – Monitoring & Evaluation
After successful implementation, the CFO will then closely monitor actuals vs budget to ensure that the company is on track to being financially solvent.
The Pros and Cons of Offshore Entities
Due to many African countries having extremely punitive taxes, several companies will work with Fractional CFOs who have experience in setting up and managing offshore entities.
Note that the setting up of an offshore entity should not be taking lightly and requires a lot of research as many countries are moving from being greylisted by the FATF to whitelisted (such as Mauritius).
Pros of having an offshore entity include: tax savings, being able to reach clients in several jurisdictions without worrying about tax treaties.
Cons of having an offshore entity include: setup cost can be quite steep so you will need upfront capital and you now have to manage 2 entities including compliance in 2 different places. Delaware is a popular offshore entity choice for many startups and SMEs on the continent, but it does involve quite a lot of filings so ensure you have the right support in place before registering to avoid penalties and fines across different jurisdictions.
What if your Company Can’t Afford a Full-Time CFO?
Fractional CFO services are starting to gain traction around the continent, which offer hourly, daily, weekly, and monthly CFO rates as well as fractional tax consultancy services. The best thing about this approach is value add at all levels and the CFO is also matched with your company based on industry experience. If you are unable to afford a fractional-CFO, consider onboarding a fractional-finance manager. Some financial visibility is better than no visibility.
Work with Nehal S
“Solving niche challenges Founders face”.
Illustrator: Lisa Williams (Instagram: @artist_llw)