Understanding the various taxes in Kenya and their respective filing deadlines is crucial for both individuals and businesses operating within the country. This article provides a concise overview of some of the most important taxes and their filing requirements.
The Tax Procedures Act 2015: Streamlining Tax Administration and Enhancing Compliance
The Tax Procedures Act (TPA), enacted on January 19th, 2016, represents a significant milestone in Kenya’s tax administration landscape. Its primary objectives are threefold:
1. Uniformity and Efficiency: The TPA establishes a set of standardized procedures across various tax types, fostering consistency and efficiency in their administration. This standardization simplifies compliance for taxpayers and streamlines administrative processes for tax authorities.
2. Enhanced Taxpayer Compliance: The Act prioritizes facilitating compliance by taxpayers. By providing clear and uniform rules, the TPA reduces ambiguity and minimizes potential confusion, ultimately encouraging greater adherence to tax obligations.
3. Effective and Efficient Revenue Collection: The TPA aims to optimize tax collection efforts through its standardized procedures. Streamlined administration and improved compliance contribute to more efficient revenue collection, strengthening the government’s fiscal capacity.
Furthermore, the TPA harmonizes and consolidates procedural rules previously scattered across different tax laws. For instance, it now mandates a standardized record-keeping period of five years for all taxpayers, replacing the previously disparate timeframes prescribed by individual tax acts like the VAT Act 2013, the Income Tax Act, and the Excise Act.
While its relative novelty might result in some instances where mirroring the TPA with other tax legislation reveals inconsistencies, these disparities are anticipated to be addressed and ironed out over time as the TPA becomes fully integrated into the broader tax framework.
Overall, the Tax Procedures Act stands as a valuable tool for both taxpayers and tax authorities, promoting clarity, streamlining administration, and encouraging compliance, ultimately fostering a more efficient and robust tax system in Kenya.
Taxes in Kenya
1. Income Taxes
The bedrock of Kenya’s tax system lies in income taxes, categorized into taxes on individual and corporate earnings.
a. Pay As You Earn (PAYE): For salaried individuals, contributing to the national coffers happens seamlessly through PAYE. Employers deduct PAYE at source based on predefined income bands, remitting it to the Kenya Revenue Authority (KRA) by the 9th of each month.
However, self-employed individuals and those with income from rental properties or investments have the responsibility of filing annual returns themselves, adhering to the same deadline.
b. Corporation Tax: Businesses operating in Kenya are subject to a 30% tax on their annual profits. Companies must file their returns within six months of their financial year-end, providing a detailed breakdown of income and expenses. To ensure a steady flow of revenue throughout the year, the KRA requires quarterly installment payments based on estimated profits. Failure to comply with these deadlines can result in penalties and interest charges.
c. Advance Tax
This is a tax paid in advance before a public service vehicle or a commercial vehicle goes for the annual inspection.
d. Withholding Tax (WHT)
This tax involves prepayment on specific income types for individuals who receive payments outside an employment relationship.
WHT applies to the following income sources: interest, dividends, royalties, professional fees, commissions, pensions, non-resident rental income, and other specified payments. Companies and partnerships making these payments are responsible for withholding and submitting the tax to the Domestic Tax Commissioner.
e. Instalment Tax
Instalment is paid by persons who have tax payable for any year that amounts to Kshs. 40,000 and above.
2. Rental Income Tax
In Kenya, all rental income derived from residential or commercial properties is subject to income tax. Individuals, partnerships, and companies that rent out property to other persons, whether for residential or commercial use, are liable to pay income tax on the rent received.
Tax Calculation: The tax is calculated on the gross rent received, without deductions for expenses or losses. The applicable tax rate depends on the individual taxpayer’s income tax bracket. Taxpayers are required to declare their rental income and pay the associated tax annually through the iTax platform.
To facilitate compliance, the Kenya Revenue Authority (KRA) may appoint agents to act as withholding agents at source. These agents are mandated to deduct and remit a portion of the gross rent as tax directly to the KRA.
Taxpayers can verify the legitimacy of any appointed withholding agent through the iTax platform’s agent checker function.
Consumption Taxes
Beyond income, various consumption taxes contribute significantly to Kenya’s national income.
3. Value Added Tax (VAT)
This indirect tax, currently set at 16%, is levied on the supply of most goods and services. Businesses registered for VAT act as collection agents, charging VAT to their customers and remitting it to the KRA by the 20th of every month. Understanding VAT exemptions and input credits is crucial for businesses to optimize their tax burden.
4. Excise Duty
Specific goods, like alcohol, tobacco, and fuel, are subject to additional excise duties on top of VAT. These duties vary significantly depending on the product and its impact on public health or environmental considerations. Importers and manufacturers of excisable goods must comply with specific registration and filing requirements.
The List and types of Excisable goods and services are listed in the 5th Schedule as read together with Section 117 (1) (d) of the Customs and Excise Act, CAP 472 Laws of Kenya.
They include;
- Mineral water
- Juices, soft drinks
- Cosmetics and Preparations for use on hair
- Other beers made from malt
- Opaque beer
- Mobile cellular phone services
- Fees charged for money transfers among others
5. Digital Service Tax
Recognizing the burgeoning digital economy, Kenya introduced a 1.5% tax on income derived from digital services offered in the country. This applies to foreign companies like Netflix and Google, as well as local providers exceeding a certain revenue threshold. Similar to VAT, monthly filing by the 20th is mandatory.
5. Capital Gains Tax (CGT)
The CGT took effect on 1st January 2015. It is a tax chargeable on the whole of a gain which accrues to a company or an individual upon transfer of property situated in Kenya, whether or not the property was acquired before 1st January 2015.
6. Agency Revenue
This is a type of payment that the Kenya Revenue Authority collects on behalf of various revenue collection agencies in Kenya.
The two types of Agency Revenue are:
a. Stamp Duty: Stamp duty is a tax charged on transfer of properties, shares and stock. It is collected by the Ministry of Lands, which has seconded the function to Kenya Revenue Authority (KRA).
b. Betting Tax: Betting Tax is chargeable on a bookmaker’s gross gaming revenue (GGR) at the rate of 15% as provided by Section 29A of the Betting, Lotteries and Gaming Act, 1966.
Betting, gaming and Lottery businesses are required to remit 20% of the winnings being paid out to winners as tax to the KRA.
Excise Duty on Betting is chargeable at the rate of 20% of the amount wagered or staked, commencing 7th November, 2019.
7. Turnover Tax
Turnover Tax(TOT) is a tax charged on gross sales of a business as per Sec. 12(c) of the Income Tax Act.
First introduced vide Finance Act 2006, replaced by Presumptive Income Tax vide Finance Act 2018 then reintroduced vide Finance Act 2019.
Turnover Tax (TOT) is payable by resident persons whose gross turnover from business is more than Kshs. 1,000,000 and does not exceed or is not expected to exceed Kshs 50,000,000 in any given year.
TOT does not apply to:
- Persons with business income below Ksh. 1,000,000 and above Kshs. 50,000,000 per annum
- Rental Income,
- Management, Professional and Training Fees,
- Any income that is subject to a final withholding tax under the Income Tax Act
A taxpayer whose turnover is within the above threshold, but chooses not to be taxable under TOT, shall be deemed to have informed the Commissioner of this choice by not registering for TOT.
Turnover Tax is charged at a rate of 1% on gross monthly sales. TOT is filed and paid on a monthly basis. The due date is on or before the 20th of the following month.
8. Social Security and Health Contributions
Kenya takes social security and healthcare seriously, mandating contributions from both employers and employees.
a. National Social Security Fund (NSSF): This mandatory contribution scheme aims to provide retirees with a financial cushion. Both employers and employees contribute 5% of the employee’s gross salary, deducted and remitted to the NSSF by the 9th of each month. Understanding contribution limits and exemptions is crucial for both employers and employees.
b. National Health Insurance Fund (NHIF): Ensuring access to quality healthcare, NHIF contributions are also deducted from salaries at varying rates based on income bands. Remittance to the NHIF follows the same schedule as NSSF contributions, by the 9th of every month. Members can then access a range of healthcare services at designated facilities across the country.
Additional Considerations
This overview provides a foundational understanding of the core tax types in Kenya. However, several other taxes and levies might apply depending on specific circumstances. For instance, property owners pay land rates, and the import of certain goods attracts customs duties.
Navigating the Kenyan tax landscape can be eased by adopting some key strategies:
- Registering with the KRA: Obtaining a Personal Identification Number (PIN) and registering for relevant taxes is crucial for individuals and businesses alike.
- Maintaining Accurate Records: Keeping meticulous records of income, expenses, and transactions is essential for filing accurate returns and avoiding discrepancies.
- Seeking Professional Guidance: Consulting with a qualified tax advisor can provide valuable insights, ensuring compliance and optimizing tax efficiency.
- Utilizing Automated Tools: Norebase’s AutoComply simplifies tax filing and payment processes, offering convenience and real-time updates.
Staying Compliant with AutoComply
AutoComply was created to transform the way compliance is currently done by eliminating the burden of managing compliance tasks on calendars and spreadsheets. AutoComply’s features are:
1. Seamless Discovery Dashboard
AutoComply’s discovery dashboard visualizes the specific requirements for your company by itemizing and displaying obligations relevant to your company based on its country of incorporation, company type, and industry. It also supports multi-company discovery, allowing users to switch between companies or view all obligations at once through the obligation planner view.
2. Automated Task and Sub-task Tool
AutoComply addresses human errors and missed deadlines when collating and maintaining data and forms by enabling collaborative document completion. Admins can assign specific tasks for obligations to team members, and AutoComply automatically generates the necessary documents for submission to regulatory authorities or government agencies.
3. Alerts via Email, Slack, and Teams
AutoComply helps teams stay informed and ensure timely compliance by sending upcoming obligations with real-time alerts via email, Slack, and Microsoft Teams. Users also receive email summaries of all pending obligations.
4. Document Management System
AutoComply assists teams in managing documentation by automatically archiving them in smart folders matching the obligation, reference, and month of generation. Users can also create their own folders and upload external documents.
5. Ancillary Features like PEP and Sanction Screening
In addition to standard compliance obligations, some companies may need to handle specific tasks such as Politically Exposed Persons screening or monitoring sanction watch lists for their customers. AutoComply offers the capability to perform these functions through a third-party integration with a global Know-Your-Customer (KYC) provider as part of its comprehensive suite of services.
Norebase is a leading provider of company registration and intellectual property services across key global jurisdictions. Our team of legal experts and local partners ensure the highest quality of service delivery. Whether you need to register your business in Kenya, the UK, the US or elsewhere, Norebase handles the entire process seamlessly.
Used together, Norebase Start and AutoComply form a comprehensive solution to simplify your business operations globally. By ensuring legal & regulatory compliance, IP protection, and ongoing automated filing—we aim to help you focus on growth.
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