Types of Taxes in Kenya, Cost, and How to Comply in 2024

Taxes are a fundamental part of any nation's economy. They play a pivotal role in financing public expenditures, supporting government functions, and ensuring the welfare of citizens. Like many other countries, Kenya has a diverse tax system that includes various types of taxes. Now allow me to take you through the different types of taxes in Kenya, their associated costs, and how individuals and businesses can comply with tax obligations.

Key Takeaways

1. Kenya has various types of taxes, including income tax, rental income tax, VAT, excise duty, CGT, agency revenue, and turnover tax.
2. Compliance with tax regulations is essential for individuals and businesses to avoid penalties and contribute to the country's revenue.
3. Registering with the Kenya Revenue Authority (KRA), maintaining accurate records, and filing tax returns on time are crucial steps in tax compliance.
4. Understanding available tax credits, such as personal and insurance relief, can help reduce tax liability.
5. Taxes in Kenya have evolved, reflecting changes in the country's economic landscape and government policies.

The Kenya Revenue Authority (KRA) serves as the government's arm responsible for collecting taxes in Kenya. Established by an Act of Parliament in 1995, KRA's primary function is to assess, collect, and account for all revenues by written laws. Here, we'll delve into the various tax categories individuals and businesses encounter in Kenya.

1. Income Tax

Income tax is a fundamental component of Kenya's tax system. It is charged annually on the income of individuals, whether they are residents or non-residents if the income is accrued in or derived from Kenya. Income tax applies to various sources of income, including:

• Business income from trade or profession
• Employment income
• Rental income
• Dividends and interests
• Pension income
• Income from a Digital Marketplace
• Natural resource income, among others

To ensure compliance, the government has established different methods for collecting income tax from companies and partnerships based on their income sources.

2. Corporation Tax

Corporations tax is levied on corporations such as Limited companies, Trusts, and Co-operatives. Companies based outside Kenya but operating in Kenya or having a branch in Kenya pay Corporation Tax on income accrued within Kenya only.

3. Pay As You Earn (PAYE)

PAYE is a method of collecting tax at source from individuals in gainful employment. Companies and partnerships with employees must deduct tax according to prevailing tax rates from their employees' salaries or wages on each payday for a month and remit it to KRA on or before the 9th of the following month.

4. Withholding Tax (WHT)

Withholding tax (WHT) is deducted at the source from specific types of income, such as interest, dividends, royalties, and more. Companies and partnerships making these payments are responsible for deducting and remitting the tax to the Commissioner of Domestic Taxes.

5. Advance Tax

Advance tax is paid before a public service or commercial vehicle goes for the annual inspection.

6. Installment Tax

Instalment tax is paid by persons with tax payable for any year amounting to Kshs. 40,000 and above.

 7. Rental Income Tax

Rental Income Tax is levied on income from renting out property for residential or commercial purposes. Agents appointed by KRA withhold a percentage of the gross rent as tax.

8. Value Added Tax (VAT)

Value Added Tax (VAT) is charged on the supply of taxable goods or services made or provided in Kenya and on the importation of taxable goods or services into Kenya. Companies and partnerships must register for VAT if their annual revenue exceeds Kshs. 5,000,000.

9. Excise Duty

Excise Duty is imposed on various goods and services, including mineral water, juices, soft drinks, cosmetics, mobile cellular phone services, and more. Companies and partnerships dealing in excisable goods and services must pay excise duty.

10. Capital Gains Tax (CGT)

Capital Gains Tax (CGT) is chargeable on gains from the transfer of property in Kenya, whether acquired before or after January 1, 2015.

11. Agency Revenue

Agency Revenue includes taxes collected on behalf of other revenue collection agencies in Kenya, such as Stamp Duty and Betting Tax.

12. Turnover Tax (TOT)

Turnover Tax (TOT) is a tax charged on gross sales of a business. It is payable by resident persons whose gross turnover from business is more than Kshs. 1,000,000 and does not exceed Kshs. 50,000,000 in any given year.

Cost of Compliance

Compliance with tax regulations is crucial for individuals and businesses. The costs of compliance include:

• Hiring tax professionals or accountants for accurate tax calculations and reporting.
• Deducting and remitting taxes at source, such as PAYE and withholding tax.
• Keeping accurate records of income, expenses, and taxes paid.
• Filing tax returns on time to avoid penalties and interest charges.

How to Comply with Tax Obligations

Compliance with tax obligations is crucial for individuals and businesses in Kenya. Here are some key points to ensure you meet your tax responsibilities:

• Register for a PIN: Individuals and companies must have a Personal Identification Number (PIN) to pay taxes in Kenya. You can obtain a PIN from KRA.
• File Returns: Taxpayers, including employees, business owners, and companies, should file annual returns with KRA. This process helps the tax authorities assess your tax liability accurately.
• Keep Accurate Records: Maintain organized financial records to support your tax returns. This includes keeping records of income, expenses, and relevant documents.
• Pay Taxes Timely: Adhere to tax payment deadlines to avoid penalties and interest charges. Different taxes have varying due dates, so stay informed.
• Seek Professional Advice: Consider consulting a tax professional or accountant for guidance for complex tax matters or when in doubt.
• Use Online Platforms: KRA offers an online platform called iTax for tax registration, filing returns, and making payments. Utilize this platform for convenience and efficiency.

READ ALSO: How to Apply for the VAT Refunds In Kenya: Everything You Need to Know

Final Thoughts

Taxes are an essential part of any nation's fiscal policy, serving as a critical source of government revenue. In Kenya, the Kenya Revenue Authority plays a pivotal role in collecting various taxes, including income tax, VAT, excise duty, and more. Compliance with tax obligations is essential for individuals and businesses to ensure the sustainability of public services and infrastructure development.