Income tax is a levy placed on the yearly income of a resident or non-resident individual living in Kenya. This tax is imposed on business income of any profession or trade, employment, and rental income, digital marketplace income, interests and dividends, pension income and natural resource income among others. The government has different models of deducing these taxes from companies based on their sources of income as outlined below.
- Corporation tax
This model of income tax is applied to the annual income of corporations such as limited companies, co-operatives, and trusts. Companies that conduct their businesses in Kenya but are based outside the county also pay a corporation tax on the income attained from their operations within Kenya.
- Pay As You Earn (PAYE)
This taxing applies to Kenyan citizens who are in gainful employment. Employers and companies are expected by the government to make deductions from the employees’ salaries and wages on each monthly payday. These deductions are done based on the prevailing tax rates put in place by the Kenya Revenue Authority (KRA) and should be made before the 9th day of the following month.
- Withholding tax (WHT)
In this model, tax deductions are only made to a specific category income when making payments to non-employees. The WHT tax applies to royalties, dividends, commissions, interests and professional or management charges which comprise of contractual, agency and consultancy fees. Other areas include pensions and rent received by non-residents
- Advance tax
Just as the name states, this tax is given before the end of a financial year when commercial and public service vehicles are taken for the yearly inspection. The amount paid by an individual varies depending on the type of the vehicle. A person is expected to pay an amount of Kshs. 1,500 or Kshs. 2,400 depending on the type of vehicle. Once paid, one should declare it in the annual individual income tax return.
- Installment tax
This tax is allocated to individuals whose tax payable is or higher than Kshs. 40,000 a year and that is not covered by PAYE. The tax is divided into 25% installments that should be paid on the twentieth day of the fourth, sixth, ninth and twelfth month.
- Rental Income Tax
This is the tax levied on the income attained from renting out properties. Companies and partnerships that give out properties for either commercial or residential use are expected to pay and income tax on the rent received. Rented properties are charged based on the primary purpose of the property either for residential or commercial purposes. The KRA assigns agents, who are registered by iTax, to withhold and pay the specified percentage of the gross rent tax. This is usually done to promote compliance.
- Value Added Tax (VAT)
There are two kinds of goods in Kenya, taxable and nontaxable goods. All taxable items and products are charged with VAT. Value Added Tax is applied to both imported and local taxable products. The KRA expects all companies and partnerships whose revenue exceeds Kshs. 5,000,000 to register for VAT. KRA has appointed agents to ensure that companies comply with VAT tax in the supply of goods and products.
- Exercise duty
This is a levy that is placed on all manufactured goods in Kenya or the goods imported into the country as stated in the 1st Schedule to Exercise Duty Act, 2015. Companies that handle and produce excisable goods are expected to pay this tax. According to the 1st Schedule to Exercise Duty Act, 2015, the goods listed under this levy include mobile and cellular phone services, fees charged on money transfer, mineral water, juice, and soft drinks, beers among other products.
- Capital Gains Tax (CGT)
This is a levy placed on the transfer of a property located in Kenya and was acquired on or before 1st January 2015 and took effect on 1st January 2015. It is chargeable on the whole gain of a company or individual upon the transfer on the property.
- Agency Revenue
This is where KRA as a tax body collects revenue on behalf of the Kenyan government. The tax boy has the mandate of collecting tax and non-tax revenue from different jurisdictions. In Kenya, there are two types of agency revenue namely stamp duty and betting or pool tax.
- Stamp duty
Stamp duty plays a vital role in the economy of Kenya. This tax is placed on the transfer of properties, stock and shares including securities, leases and property transfers. Stamp duty charges are determined by the Ministry of Lands which has seconded the functions of the KRA. The rates vary based on location, for instance, urban or rural areas and duration.
- Betting/ pool tax
Betting tax is charged on the income from the Gross Gaming Revenue (GGR). Based on the Gaming Act, 1966 and section 2A of the Betting and Lotteries, businesses offering gaming, lottery and betting services are expected to pay 20% of the money being paid to the winners to KRA.