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Welcome to our Newsletter. In this issue we highlight the main sources of capital for business giving their pros and cons. On tax matters, we give you an update on the new NHIF rates and a highlight of the proposed tax tribunal.
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Business Advisory Services
 

We provide information on how to establish, sustain and/or grow business. This  enables our clients manage risk, improve performance and sustain the results.

The services include:
.Strategic planning
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.Financial consultancy
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                                   Newsletter                 Issue 2015/5
Selecting a Capital Structure for your Business.

Capital is a necessary requirement to start up a business, operate and generate profits. Lack of capital may lead to business failure. A business can raise capital from the following main sources; debt, profits and sale of equity. The following are pros and cons of these sources of capital.

1.
Equity

The main advantage of using equity as a source of capital for business is that it does not have fixed payment requirements or interest charges. Therefore it does not increase payment burden so the business can focus on growth.

A major disadvantage of equity financing is that when equity/shares are sold, the investor has ownership interest in the business and gets part of the profits. Therefore equity capital reduces the primary owner’s share of the profits and of the business as a whole.

Another disadvantage of equity capital is that equity investors demand a high rate of return on their investment. A business owner may end up giving up more stock for a lower price.


2. Debt

One advantage of using debt capital is that payments for debts are tax deductible. Therefore, using debts as a source of capital for a business is favourable because the tax deductibility of the debt payment will reduce taxes on some income.

In debt financing, the lender does not take up any part of your business; this is an advantage to the business owner as you get to keep full ownership of the business.

On the other hand, debt capital requires repayment of the borrowed principal and interest payments. This does not allow a business to keep its profits hence there is lack of flexibility and growth.

Another disadvantage of using debt financing is that it can cause cash flow difficulties. Lenders require the same amount of repayment every month regardless of whether the business is doing well or not. This can lead to defaults or late repayments.
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For Business Advisory Services, contact Daniel Muhia on dmuhia@mgkconsult.co.ke


 
Self-employed workers to continue remitting SH.160 to NHIF
 
A case filed by an NGO has brought temporary reprieve for self-employed workers under the NHIF scheme as they will continue contributing Sh.160 until the case is determined. The self-employed workers have sued the NHIF seeking a review of the new rates that require them to remit Sh.500 every month.
 
Tax Tribunal to be set-up
 
The Kenya Revenue Authority (KRA) has developed a Framework that seeks to provide an Alternative Dispute Resolution (ADR) mechanism as a means of resolving tax disputes. The Framework aims to enhance KRA’s service delivery, promote trade facilitation and the quality of tax payer compliance and clear the backlog of cases, freeing billions of shillings to the exchequer. This framework will be launched on 9th June 2015, more details will follow afterwards.

For Tax Services, contact Beatrice Njambi on bnjambi@mgkconsult.co.ke

 
"The journey of a thousand miles begins with one step"
-Lao Tzu
 

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