Taxes in Kenya

Types of Taxes

There are two types of taxes in Kenya

Direct taxes

They are remitted directly to the government as income tax.

Indirect taxes

These are  charges that you pay when you buy goods and services and they include Value Added Tax (VAT), excise duty, and custom taxes

  1. INCOME TAX

What is Income Tax?

Income tax is a direct tax that is imposed on income derived from the following:

  • Business income from any trade or profession
  • Employment income
  • Rent income
  • Investment income
  • Income from services rendered among others
  • Pensions among others

How is Income tax collected?

Collection of income tax varies  based on the companies’ sources of income.

These methods include:

  1. Corporation Tax
  2. This is a form of Income Tax that is levied on corporate bodies such as Limited companies, Trusts, and Co-operatives, on their annual income.
  3. Companies that are based outside Kenya but operate in Kenya or have a branch in Kenya pay also pay Corporation Tax on income accrued within Kenya only.

Currently the rate of corporation tax is at 30%.

b)   PAYE

  • PAYE is a method of collecting tax from individuals in gainful employment.
  • Gains or Profits includes wages, casual wages, salary, leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, gratuity, or subsistence, travelling, entertainment or other allowance received in respect of employment or services rendered.
  • If you are an employer you are required to register for this obligation.
  • As an employer you are required to deduct PAYE from your employees? salaries and wages at the prevailing rates and remit the same to KRA on or before the 9th of the following month.

c)   Withholding VAT?

  • When a taxpayer (trader) supplies and invoices an appointed withholding VAT Agent the payment for supply is made less VAT charged or that which ought to have been charged regardless of whether the supplier is registered for VAT or not.
  • Withholding VAT is only charged on taxable goods and services.
  • No VAT is withheld on exempt goods, exempt services and Zero rated supplies.
  • Any VAT withheld in exempt and Zero rated supplies is treated as tax paid in error and therefore refundable by the Commissioner
  • ADVANCE TAX

What is advance Tax?

This is a tax paid in advance before a public service vehicle or commercial vehicle is licensed or after  the annual inspection.  

What are the tax rates for advance tax?

  • For vans, pick-ups, trucks, prime movers, trailers and lorries; Kshs. 1,500 per ton of load capacity subject to a minimum of Kshs. 2,400 per year of income;
  • For saloons, station-wagons, mini-buses, buses and coaches; Kshs. 60 per passenger capacity per month subject to a minimum of Kshs. 2,400 per year of income.

Is advance tax a final tax?

Advance tax is not a final tax. Individuals who have paid any advance tax are required to declare the same in their individual income tax returns.

  • Installment Tax

Installment tax is paid by persons who have tax payable for any year that amounts to Kshs. 40,000 and above

4)     Residential Rental Income?

  • This is tax payable by resident persons on residential rental income accrued or derived in Kenya where the rent income is between Kshs. 144,000 and Kshs. 10 million per annum.
  • The rate of tax is 10% on the gross rent received and is payable when landlords receive rent from their tenants either monthly, quarterly, semi-annually or annually. However, returns must be filed monthly.
  • No expenses, losses or capital deduction allowances shall be allowed for deduction from the gross rent.
  • VAT

What is Value Added Tax (VAT)?

  • Value Added Tax is charged on supply of taxable goods or services made or provided in Kenya and on importation of taxable goods or services into Kenya.
  • If you are registered for VAT you will be required to account for VAT charged on your taxable supplies through online monthly returns and pay any VAT due.
  • It is important to note that tax is due and payable when;
  • Goods or services are supplied to the purchaser
  • An invoice is issued in respect of the supply
  • Payment is received for all or part of the supply

A certificate is issued by an architect, surveyor or any person acting as consultant or in a supervisory capacity in respect of the service (whichever is earliest)

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