Discover the Hidden Taxes You Never Knew Existed in Kenya: Are You Paying Your Fair Share?
Taxation is an important aspect of any country’s economic system, and Kenya is no exception. In this article, we will be discussing the various types of taxes in Kenya, including income tax, corporation tax, Pay As You Earn (PAYE), Withholding Tax (WHT), advance tax, rental income tax, Value Added Tax (VAT), excise duty, capital gains tax, and agency revenue tax. We will delve into the specifics of each tax, including the rates, who is responsible for paying them, and how they are calculated. This article will provide a comprehensive overview of the tax system in Kenya, and help individuals and businesses understand their tax obligations.
1) Income Tax
This is paid by an individual or company for every annual income accrued while in Kenya or derived from Kenya. It comes in different forms based on the source of the income. It can be from an employee salary, rent income, business income, dividend and interests, pension or income from digital/online activities.
The above sources of income will be taxed in different ways which are:
i) Corporation Tax
Corporations operating within Kenya are required to pay corporate tax on their annual income. Companies based in Kenya are subject to a 30% corporate tax rate, while those based outside of Kenya but doing business in the country are subject to a 37.5% rate.
ii) PAYE (Pay as You Earn)
PAYE, or Pay As You Earn, is a tax imposed on individuals’ income on a monthly basis, based on the current tax rates. These rates are subject to change periodically. The following are the current tax rates.
- For the first 24,000 per month = 10%
- For the next 8,333 per month = 25%
- On all income in excess of 32,333 = 30%
For example, for a person earning a taxable income of Ksh 50,000; the following is the PAYE calculation (without the reliefs or exemptions)
Companies making the payments are responsible for deducting PAYE from their employees’ salary and remitting the deducted amounts to KRA by 9th of the following month.
iii) Withholding Tax (WHT)
Withholding Tax (WHT) is imposed on income paid to non-employees, such as dividends, royalties, interests, commissions, pensions and rent from non-residents. Companies making these payments are responsible for deducting the tax and submitting it to the Commissioner of Domestic Taxes. The following are the WHT rates.
iv) Advance Tax
Advance tax is a type of tax that must be paid before a Public Service Vehicle (PSV) or commercial vehicle undergoes annual inspection. The tax rates vary depending on the type of vehicle. Vans, pickups, trucks, trailers, and lorries are charged Ksh 1,500 per ton of load capacity, while saloons, minibuses, buses, station wagons, and coaches are charged Ksh 60 per passenger capacity per month.
2) Rental Income Tax
Rental Income Tax is imposed on income generated from renting out property. The tax rate depends on the usage of the property, whether for commercial or residential purposes. The tax is charged at a rate of 10% on the gross rent received per month.
3) VAT (Value Added Tax)
Value Added Tax (VAT) is imposed on the supply of taxable goods or services within Kenya or on the importation of such goods and services into the country. Companies whose annual revenue is below 5,000,000 are given the option to register for VAT or not to, while those exceeding this threshold are required to register. The VAT rates are 8% for petroleum oils obtained from bituminous minerals and 16% for all other goods and services.
4) Excise Duty
Excise Tax is imposed on goods that are manufactured in Kenya or imported into the country. The following are examples of excisable goods: mineral water, juices, soft drinks, cosmetics, beer made from malt, opaque beer, mobile cellular phones, and fees charged for money transfers.
5) Capital Gains Tax
Capital Gains Tax is imposed on the net gains from the sale of properties (including land, buildings, securities, and intangible assets) located in Kenya. The tax is calculated at a rate of 5% of the net gains.
6) Agency Revenue Tax
Lastly, there are two types of agency revenue taxes: stamp duty and betting and pool tax.
i) Stamp Duty
This tax is imposed on the transfer or sale of properties, shares and stock.
ii) Betting and Pool Tax
This tax is imposed on the Gross Gaming Revenue (GGR), which is the gross turnover minus the amount paid to winners, and is charged at a rate of 15%. In addition, businesses involved in betting, gaming, and lotteries are required to deduct 20% from the winnings paid to winners and submit it to the Kenya Revenue Authority (KRA). An additional 20% tax is also imposed on the amount staked, effective since November 7th, 2019.
