Now that you are earning a salary, it is time you did some nation building – if you may. Actually, it is not a voluntary offer. The Kenya Revenue Authority (KRA) logo makes it clear that taxes must be paid in full, and in time.
The central government uses that money to secure your residence, equip and run national health care facilities, zip up potholes on highways and smaller carriage ways, educate Kenyans, spread electricity connection, pay its workers, subsidise food and food production, expand the amount of real estate under tarmac, maintain government offices, etc.
Now that you are proud seeing that you actually fund the national coffers, here is how income tax works in Kenya.
How Income Tax Works in Kenya
Here is a quick, indispensable look through income tax in Kenya, how it is collected, what’s deducted and why, and if you should be receiving a tax refund anytime soon.
What is taxed?
- Employment income, including benefits such as house and car allowances
- Business income
- Rental income if you are a landlord/landlady
- Investment income, such as profits from stock market trading and bonds
What is not taxed?
- Interest accrued on housing bonds topping up to a maximum of KSH. 300,000
- Contributions to a registered pension fund and/or provident funds, etc
How is Income Tax collected in Kenya?
i) Pay As You Earn
In Kenya, anyone classified as an employee pays income tax in form of “Pay As You Earn” (PAYE) deductions. These are withheld by your employer as they are required to do so by Kenyan law on taxes. Whether you are a foreign national working in Kenya, a resident who works part-time, or a worker paid by an entity based abroad, you have got to remit that dully filled tax remittance form.
So, much as it takes a single day to remit taxes at your nearest KRA office, it takes a whole year to accrue that amount.
To qualify to finance nation building, you must be earning a salary above KSh. 11,135 per month. Wages paid to casual employees that work on a regular basis (more than one month) with their employer are also considered taxable income. The PAYE amount deducted by employers is remitted to the KRA on the 9th day of the following month. Failure to which, penalties are imposed.
Kenya uses a Progressive tax system where the more income you make, the higher up you rise on the tax bracket table. Under the progressive tax system emerges what’s referred to as marginal tax rates. The “margins” determine your total taxable income.
Income Tax Rates and Income Brackets for 2017
|Annual Taxable Income||Tax Rate|
|KSh0 – KSh134,164||10%|
|KSh134,165 – KSh260,567||15%|
|KSh260,568 – KSh386,970||20%|
|KSh386,971 – KSh513,373||25%|
|KSh513,373 and Above||30%|
ii) Corporate tax
Corporate bodies, such as Limited companies and cooperatives, are charged at a rate of 30% for resident bodies, and 37.5% for non-resident companies.
iii) Withholding Tax
This is tax slapped on such taxable income as interest, royalties and commissions, consultancy fees, rent paid by non-residents, and pensions.
iv) Advance Tax
This was specifically brought up for Public Service (PSV) and commercial vehicles and is paid before the vehicle’s owner is issued a license to operate.
Commercial vehicles are required to pay KSh. 1500 per ton of their load capacity. So, if your lorry hauls 15 tonnes for example, your annual advance tax for it adds up to (KSh1500x15) = KSh.22, 500. The minimum amount payable is KSh. 2400 whether you made any money over the past year or not.
PSVs such as matatus, taxis and coaches, are charged advance tax of KSh 60 per passenger per month. Meaning, a 14-seater matatu should remit about (KSh.60×14) = KSh. 840 per month (KSh. 10,080 annually). KRA might revise these rates, so keep checking back with them. Again, you can’t pay less than KSh. 2400.
What is tax relief?
You are eligible for a monthly personal relief amounting to KSh. 1,162 (KSh. 13,944 year). The amount is subtracted from your total income tax to be paid for that month, and is not refunded to you in cash (too bad).
Basically, you are exempted from tax on three grounds:
- Personal relief: Granted on an individual who generates an income, irrespective of how much they earn
- Insurance relief: On premiums paid for Life Insurance
- Mortgage relief: By deducting interest on Mortgage for owner-occupied house for eligible persons
The best part about your PAYE being deducted by your boss every payday is that you won’t have to queue up at the Local Domestic Tax Office to remit this type of tax at the end of the year. It’s done for you.
Self Assessment Tax Return
This is a form dispatched by the national tax body to salaried individuals, such as sole proprietors and partners, and corporate bodies. This is generally aimed at the self-employed who may not have the same linear platform as formally employed residents to pay their taxes.
Normally, KRA will send you the form but just in case they don’t, you are encouraged to fetch one from your local Domestic Tax Office. Then analyse your gross income for the past year, do the math, and eventually pay your dues on or (preferably) before 30th June of the following year for individuals, and 6 months after expiration of the accounting period for corporate bodies.
How to Calculate Income Tax in Kenya
The Income Tax Guide availed by KRA is a technical, 57-page document, written in court lingo. So you are excused for finding it a bit on the confusing side than helpful. Fortunately for you, there is a fitting free online PAYE income tax calculator you could use to help you with pinning the numbers where they belong.
A good PAYE tax calculator, deduces your dues to KRA based on the most recent updates to KRA PAYE requirements. So you can accurately budget for the remittance in the present.
Moreover, you can use an income tax calculator to find out the net pay you’ll take home after applicable taxes and deductions such as personal and insurance relief, and the newly introduced 2015 NHIF and NSSF rates are slashed off. You can also confirm any tax incentives and exemptions you could be eligible for and enter the information accordingly.
Hopefully, this quick guide helps you understand and compute your income tax more accurately. KRA also encourages any taxpayer who might not understand the taxation process to exercise their right to information and walk in at any of its remittance points and seek further clarification. In case you need further clarification though, reach us in the comments section below, and save the time you’d need to reach an onsite KRA office.