In Kenya, the Kenya Revenue Authority (KRA) is the agency responsible for collecting tax on behalf of the government. The tax filing process has been simplified through the digital platform; iTax.
In order to be on the safe side of the law, it is important to understand the existing types of taxes in Kenya and the relevant requirements. For this reason, this article will highlight all what you need to know about taxation in Kenya.
Contents
Types of Taxes in Kenya
In Kenya, the two broad categories of taxes are direct and indirect taxes. Direct taxes refer to the portion of one’s income that is remitted to the government. On the other hand, indirect taxes are paid when one purchases a particular product or service. These two groups of taxes are further divided into the following:
Individual Income Tax in Kenya
All residents and non-residents in Kenya are required to pay their income tax.
Corporation Tax in Kenya
These remittances are made by corporate entities on their yearly returns. Resident and non-resident companies are charged 30% and 37.5% of their annual income respectively.
Withholding Tax in Kenya
It is deducted when paying non-employees for the following income sources:
- Dividends
- Interest
- Royalties
- Rent acquired by non-residents
- Professional or management fees
- Pensions
- Commissions
Pay As You Earn (PAYE) in Kenya
It is deducted from all employed individuals by the employers and forwarded to the KRA by the 9th of every month. The deducted amount depends on the stipulated rate.
Installment Tax in Kenya
It is applicable to people whose annual payable tax is KES 40,000 or more.
Advance Tax in Kenya
This type of income tax is paid before a commercial or public service vehicle is taken for the required annual inspection.
Rental Income Tax in Kenya
This is the amount to the government by individuals or companies who rent out their properties. The paid amount depends on whether the structure is for commercial or residential use. For easy compliance, there are various KRA agents that facilitate this process. An agent can be verified on iTax under the agent checker.
Value Added Tax (VAT) in Kenya
It is paid for supplied products and services. It is applicable for both imported and local goods. Companies whose yearly returns exceed KES 5 million have to register for VAT. Similar to the rental income tax, there are various KRA agents that can assist with the compliance procedure.
Excise Duty
It is paid for products manufactured within the country as well as imported goods listed on the Excise Duty Act of 2015.
Agency Revenue
KRA collects these remittances on behalf of various agencies. The two encompassed forms of taxes are the Betting and Pool Tax and Stamp Duty. Stamp Duty is collected on behalf of the Ministry of Lands during the transfer of stocks, shares, or properties. As for the Betting and Pool Tax, businesses in the lottery, gaming, and betting subsectors withhold 20% of the winnings as tax and forward it to KRA. Additionally, 15% of a bookmaker’s gross gaming revenue is paid as tax. Betting also attracts a 20% excise duty of the staked or wagered amount.
Capital Gains Tax
It is charged for the returns accumulated upon the transfer of a property within the country.
Tax Irregularities That Will Affect Your Business in Kenya
Improper record keeping
Failure to keep accurate financial records will make it difficult to file your tax returns. Furthermore, if KRA realizes that you are guilty of this irregularity, they can impose a penalty of between KES 10,000 and KES 200,000.
Incorrect tax obligation
To avoid losses and penalties, business proprietors are advised to familiarize themselves with all the applicable types of taxes as well as any modifications of the rates. For example, if a company’s annual turnover is below KES 5 million, it is required to pay a turnover tax of 3% every 3 months. On the other hand, if the turnover is over KES 5 million, it is subject to VAT at 16% of the sales.
Combining business and personal expenditures
The law requires corporations to be categorized as separate entities from their proprietors. As for sole proprietorship, this is not a requirement. However, personal and business finances should be kept separately since an auditor will require the management to proof that the presented income and expenditure statements are linked to the enterprise in question.
Incorrect business structure
While a business may start as a partnership or sole proprietorship, it is important to use the services of an expert to alter its legal entity when need be. This will protect you from penalties.
Tax evasion
It is common for taxpayers to feel as though the government is collecting more money from them than they should. Subsequently, some just disclose a portion of their taxable income. If you are a Kenyan planning to use this route, please don’t. It is illegal! This practice is bound to attract a fine that is double the evaded tax or KES 400,000; whichever is higher. It may also result in a prison term of 3 years.
Delayed tax submission
This irregularity usually attracts hefty fines. For example, VAT should be paid by the 20th of the next month after the sales. Failure to file this tax on time attracts a fine worth 5% of the due taxes or KES 10,000; whichever is higher. You will also be required to pay an extra interest of 2% for every month you’re late.
Not registering as a taxpayer
Some businesses focus on remaining as an informal entity hence avoid registering their enterprises and the PIN needed for the tax return process in Kenya. In addition to attracting penalties, such a move limits your business’ growth since you will not be eligible for loans or other beneficial components.
Conclusion
Part of being a patriotic citizen means remitting your taxes dutifully. The acquired returns help the Kenyan government to complete projects that will help advance the country’s economy and citizens’ living standards. To be on the safe side of the law, it is important to understand the existing types of taxes in Kenya. It is also important to familiarize yourself with the penalties for different taxation-related offenses.
