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.
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.
- 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.