Taxation Notes

Taxes And Tax Laws in Kenya: A Guide

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.

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Taxation Notes

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

1. 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.

2. 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:

3. 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%.

4. 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.

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5. 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.

6. 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.

7. Capital Gains Tax

Businesses that gain from a sale of land or building pay this kind of tax.

8. 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.

9. 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

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formula, medicines, fertilizers, sanitary towels, pharmaceuticals are exempt from

this tax.

10. 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.

11. 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.

12. 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?

13. 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.

14. Stamp Duty

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