Taxes And Tax Laws in Kenya: A Guide

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Taxes illustration. Image from https://amac.us/amnesty-cost-taxpayers-trillions-national-academy-sciences-report-indicates/

We’ve all heard or seen the quote “Nothing is certain in life except death and taxes” but don’t really give it a second thought, especially the taxes part. What it basically means is that death and taxes are unavoidable. We must all pay taxes and unfortunately, we must all die. Death and taxes share other similarities apart from their inevitability. For instance, trying to understand both of them can give you sleepless nights. If you’re a new taxpayer, you know the struggle. Nonetheless, as a responsible citizen, you must pay your taxes whether you understand them or not. So, here’s a guide to help you become acquainted with taxes and tax laws in Kenya.

Tax Laws

There are quite a number of statutes that govern taxes in Kenya that it would be difficult for someone to read all, especially an ordinary citizen. They include the Tax Procedure Act, Tax Appeals Tribunal Act, Income Tax Act, Excise Duty Act, Kenya Revenue Authority Act, and Value Added Tax Act. These along with other rules and regulations stipulate everything regarding taxes in detail. However, there are key areas that every taxpaying Kenyan should be aware of.

For starters, the Kenya Revenue Authority is the body that oversees all tax collection in the country. It was established in 1995 under the Kenyan Revenue Authority Act and given the mandate to collect revenue on behalf of the government. They are the ones who issue that friendly reminder yearly to file your taxes before the 30th of June.

Failure to file your tax before the deadline attracts a fine of Ksh. 10,000. These penalties can quickly add up if you fail to file your taxes in time every year. Additionally, the state can open a civil case against you through the Commissioner to recover unpaid tax.

You can, however, reduce the amount of tax payable legally. Some of the deductible transactions include charity donations, business assets such as buildings, start-up expenses, and bad debts. Landlords And KRA To Benefit From Rental Tax Amnesty

Types Of Taxes

  • Land tax

The land tax also known as land rates is a tax imposed on all registered property. It’s paid to the municipal or county government in respect of services such as water, sanitation, and sewerage. The rates are found under the Valuation For Rating Act. However, there are properties exempt from paying land rates such as land used for educational institutions, worship centres, and cemeteries.

  • Income tax

Anyone above the age of 18 with a source of income has an obligation to pay income tax. It’s imposed on businesses, rent, services, employment, investments, and pensions. There are different forms of income tax depending on your source of income. They include:

Withholding Tax – This is payable by all people living in Kenya, resident or non-resident, who earn an income through interests, dividends, pensions/retirement annuity, appearance or performance fee, royalties, commissions, management/professional fees (including consultancy, contractual, and agency fees) and rent received by a non-resident. The rates are normally between 3% to 30%.

Residential Rental Income Tax – As the name suggests, this tax is payable for income earned through residential properties. The income shouldn’t be above Ksh. 10 million annually.

PAYE – Most people fall under this category of taxpayers. It’s payable by people in gainful employment where the employer deducts the amount from the employee’s salary every month and remits it to the government. Though the employer calculates and remits the tax on behalf of the employee, it’s important to check your tax status in order to confirm that the right amount has been deducted. Employees are also eligible for a tax credit referred to as a personal relief.

People living with disabilities are eligible with proof for a tax exemption on their earnings for the first Ksh 150,000 per month or Ksh 1.8 million per year.

Corporate Tax – All registered companies in Kenya, whether resident or non-resident, must pay taxes in Kenya. The tax rate for resident companies is 35% while that of non-resident companies is 37.5%. NGOs and religious institutions are exempt from paying taxes.

Capital Gains Tax – Businesses that gain from a sale of land or building pay this kind of tax.

Advance Tax – This applies to PSV owners. Anyone with a public service vehicle pays this tax before they can register their vehicle. The Current rates for big commercial vehicles such as trucks, lorries, vans, and pickups are Kshs. 1500 or Kshs 2400 per ton of load capacity yearly. The rates for small commercial vehicles such as minibuses, station wagons, and saloons are Kshs 60 per passenger capacity each month or Kshs 720 per passenger yearly.

Value Added Tax – This is a tax levied on some goods and services. It’s currently at 16% and 8% for petroleum products. To ease the burden on the taxpayer, some goods such as milk, eggs, meat, rice, maize, bread, beans, unprocessed vegetables, tubers, infant food formula, medicines, fertilizers, sanitary towels, pharmaceuticals are exempt from this tax.

Instalment Tax – This is a form of advance tax and is payable in anticipation of the income tax payable in a year. It can be done by every person who has a tax liability that is not covered under PAYE, except those subject to turnover tax, and is over Ksh. 40,000. It’s done in four equal instalments and done before the year of income is over.  The instalments are spread evenly at 25% of the tax due and payable on the 20th day of the 4th, 6th, 9th, and 12th months of the year of income for all taxpayers except those in the Agricultural Sector. Taxpayers in the Agricultural Sector pay in instalments of 75% in the 9th month and 25% in the 12th month.

Turnover Tax – This tax was re-introduced in 2020. It’s a 3% tax on the gross sales/turnover of a business. It doesn’t apply to persons with a business income of Kshs 5,000,000 and above, Rental Income, Limited Liability Companies, Management and Professional Services.

  • Betting Tax

Betting, gaming, and lotteries businesses have a mandate to pay 50% of the revenue which they earn from betting under the Lotteries And Gaming Act. What Is The Future Of Online Sports Betting In Kenya?

  • Excise Duty

This is a tax imposed on some goods manufactured in Kenya or imported into Kenya. They include beer, mineral water, juices, soft drinks, cosmetics, mobile cellular phone services, fees charged for money transfer, and others.

  • Stamp Duty

When you transfer properties, shares, and stock, you will pay stamp duty during the process.

How To Pay Taxes

Some taxes have to be paid by the individual themselves. You can simply log in to the iTax portal and follow the instructions depending on which kind of tax you want to pay.

Here is How To Legally Reduce Your Tax Liabilities

Check out Effects Of Raising Taxes On The Kenyan Economy

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