03/03/2026
"If my account balance is low, why am I still paying so much tax?"
Relating to the concept of Cashflow and taxable profit, one of the biggest misconceptions many business owners have is assuming cash in the bank equals profit — and profit equals tax.
In reality, cash flow and taxable profit are two very different financial stories, and misunderstanding this difference is why many profitable businesses still struggle when tax obligations fall due.
Cash flow simply reflects money moving in and out of the business. It answers the question:
Do I have cash available right now?
Taxable profit, on the other hand, is an accounting figure calculated using established reporting principles, guided by standards such as IAS 7 Statement of Cash Flows and tax regulations. It measures performance.
A business may receive large customer payments and feel financially strong because cash is flowing. But tax authorities do not assess tax based on bank balances; they assess it based on profit after allowable adjustments.
Expenses like loan repayments, asset purchases, or owner withdrawals may reduce cash significantly but may not fully reduce taxable profit. So while cash decreases, tax liability may remain high.
On the flip side, a company can report healthy profits yet experience cash shortages. This happens when sales are made on credit, inventory absorbs working capital, or significant funds go into servicing loans. The business looks profitable on paper, but there isn’t enough liquid cash available when obligations such as Company Income Tax, VAT remittances, or withholding taxes become due.
The point is, Profit drives taxation, but cash flow determines survival. Both can be monitored simultaneously for a proper tax planing.
