TAXPAYER

SENSITIZATION
NYERI TSO
 Arears Covered

• Withholding Tax

• Employment Income
Relevant statutes. Income Tax Act
Cap.470.
• Sec 2: Definition of terms: Contract of Service, Employer, Paid,

• Sec 3: Charging Section

• Sec 5 Ascertainment of employment Income Resident and Non

Resident Persons

• Sec 29, 30: Entitlement to and imposition of relief

• Sec 37: Deduction of tax from emoluments (P.A.Y.E) and

penalties on failure to remit. Sec 37A-Responsibility on every
Director/Officer on deducting and accounting for PAYE.

• Sec 39: Set-off tax

 Employment vs Consultancy
Contract of employment.
Contract of employment or service means an agreement, whether
oral or written, expressed or implied, to employ or to serve as an
employee for a period of time.
Contract for employment.
• A contract for employment is an agreement that is entered into by
the company with a third-party for availing its services.
• The third-party is an independent service provider, not an
employee of the company.
• The third party is not entitled to the benefits that the employees of
the company receive or are entitled to from time to time during the
course of their employment.
• Control: The company does not exercise control over the third-
party.
Key indicators
Key indicators
PAYE
• Introduced from 1st July 1966. To cater for the
salaried civil servants and others. who found it
difficult to pay taxes, upon being assessed at the end
of a calendar year

• Casual employee : means a person the terms of

whose engagement provide for his payment at
the end of each day and who is not engaged for
a longer period than twenty-four hours at a
time
Assessment of Employment Income.

• Gains or profits from employment or rendering services

may be in two forms: Cash and Non cash rewards or
payments

Cash benefits
• Wages and / or salary
• Leave pay and /or Payment in lieu of leave
• Sick pay
• Directors’ Fees
• Commissions
• Bonuses
Assessment of Employment Income.
• Allowances:house, travelling, medical leave, mileage, sitting, acting,
entertainment, makeup allowance, voice over allowance e.t.c

• Gifts and rewards- received by virtue of employment e.g Christmas gifts

to employee and long service awards

• Employee’s private expenses paid by the employer; Telephone,

electricity, grocery, water, insurance premiums, school fees etc

• mortgage payment (provided they are not taxed on the employer).

• Car Grants – For cash payment, 30% of the amount paid. For car bought
directly by your employer, fringe benefit tax will be applied.

• Gratuities /Service pay/ Compensation for termination of employment

Assessment of Employment Income.
Non-cash Benefits:
• Provision of services.
• Servants
• Motor car
• Housing benefit
• Tax free remuneration
• Passages
• Medical Benefit
• TV channels subscription: Subscriptions to the
media channels e.g. Multichoice
Non taxable Benefits.
▪ The expenditure on passages between Kenya and any
place outside Kenya borne by the employer in respect of
qualified expatriates.

▪ Cost of medical services including insurance premiums

paid in respect of medical schemes WEF 2007

▪ Fringe benefits subject to tax under Section 12B.

▪ Concessional/ Educational fees of employees’

dependants or relatives disallowed under section 16
which have been taxed fully on the employer
Non taxable Benefits.

• Gratuity paid into a registered pension scheme

• Reimbursements : Sec 5(2)(a)(ii) – Commissioner is

satisfied that they are indeed mere reimbursements.

• Allowance for period spent away from duty station:

Sec 5(2)(a)(iii) -Per diem: the first ksh 2,000 per
day
Deductions Allowable against
Employment Income

Before Tax
• Pension contributions. Max 240,000/=
• Mortgage interest/owner occupied interest. Max 300,000/=

After tax
• Personal relief 13,944/=, 15,360/= or 16,896/= or 24,000/=
• Insurance relief 15% of premiums paid. Max 60,000/= per annum.

Note: For life Insurance, the insurance is made with an insurance

company lawfully carrying on in Kenya the business of life insurance
Withholding Tax
• This is a tax that is deductible from certain classes of income at
the point of making a payment, to non-employees.

• Sec 10 and 35. Both resident and non –resident transactions.

Rates- 3rd Schedule of Income Tax Act.

• Due date: On or before the twentieth day of the month following

the month in which the deduction is made.

• Par 10. WHT Rules: For the purpose of the recovery of tax which a
person would have been liable to pay, that person shall be deemed
to have been appointed an agent of his payee under Section 96 of
the Act.

• Penalty for failure to deduct or remit withholding tax.

L.N.54/2004 is 10% Max 1million.
Withholding Tax (WHT)
Income chargeable to Withholding Tax:
• Interest
• Dividends
• Royalties
• Management or profe ssional fees (including consultancy, agency or
contractual fees)
• Commissions
• Pension or retirement annuity;
• Rent received by non-residents
• Winnings
• insurance or reinsurance premium, except insurance or reinsurance
premium paid in respect of aviation insurance
• sales promotion, marketing, advertising services, and transportation of
goods (excluding air and shipping transport services .
• Other payments specified.
Withholding VAT
• Introduced in Kenya w.e.f 1st October 2003.
Reintroduced in 2016.

• Withholding VAT rate of 2% of the value of

taxable supplies with effect from 07/11/2019.
prior the rate was 6%.

• Tax withheld on Exempt and zero-rated supplies

treated as tax paid in error and is refunded by the
commissioner

• Withheld VAT is a tax credit on the withholdee and

is offset against the tax payable
Withholding VAT
• Withholding VAT Agent are appointed by the
Commissioner (Suppliers to Govt agencies to Update
supplier details in IFMIS)

• Withholding VAT on taxable supplies not charged VAT

is computed using the fomular X - X/1.16 where X is
the total value of the invoice or taxable supplies

• A taxpayer whose VAT has been withheld is required to

submit a VAT 3 return and pay tax charged whether the
tax has been or will be withheld or payment has been
made or not (Tax point).
Offences – Withholding VAT

• Failure by the appointed Agents to withhold VAT.

• Failure to remit the withheld VAT or to Submit a return where there is no

payment to make.

• Failure to issue withholding VAT certificates.

• Purporting to be a withholding VAT Agent.

• A withholding VAT Agent who commit the above offences is liable to a

penalty of Kshs 10,000 or 10% of the Tax due whichever is higher.
Illustration
• XYZ Limited issued an Invoice 23 in 2020 of ,
kshs. 2,000,000 for consultancy services to
Lamu County.

WHIT=5%x2,000,000 = 100,000

WHVAT= 2%x2,000,000 = 40,000.

Refunds
• Auto applications and rejections mostly 2016

• Proper applications through profile

• Confirm credits are in the ledger.

• Not based on the acknowledgement receipt

• Agency revenue
Cancelations Withholding IT and VAT

• Certificates
-Application
-Approval at Station
-Withholding voucher

• Payment Registration Number

-Payment
-Excel upload
-Payment Amendment
Instalment Tax
• Introduced from 1st January, 1990. Sec 12 of Income Tax Act

• Instalment Tax is a credit to be offset against tax payable at the

end of the year.

• Accounting period determines months of payment.

-1st installment -4th month
-2nd instalment -6th month
-3rd instalment -9th month
-4th instalment -12th month

• Installment tax is paid by persons who have tax payable for any
year that amounts to Kshs. 40,000 and above
Instalment Tax
The amount of instalment tax payable by any person for
any current year of income shall be the lesser of –

(a) the amount equal to the tax that would be payable by

that person if his total income for the current year
was an amount equal to his instalment income; or

(b) the amount specified in the preceding year

assessment multiplied by one hundred and ten percent.