Tax regimes include income tax, value added tax, excise duty tax, stamp duty tax and customs. These taxes are regulated by, among others, the Value Added Tax Act, the Income Tax Act, the Excise Duty Act, the Stamp Duty Act and the East African Community Customs Management Act.
This is a tax imposed on the income of an individual or an organization.
Income Tax is a direct tax imposed on:
Every taxpayer in Kenya is assigned a Personal Identification Number (PIN). There are transactions that cannot be affected unless the parties to the transactions have a PIN. For instance, sale of land, opening a bank account, registration of vehicles, etc. Every holder of a PIN is under an obligation to file annual tax returns. These returns are filed on the Self-Assessment Return form that is generated through the Revenue Authority’s portal; iTax.
Failure to file the annual return attracts a minimum penalty of Kshs. 20,000. Those without transactions during the financial year can file a nil return.
This is a template in which a taxpayer is required to declare income and compute tax liability. The Self Assessment Return should be completed and submitted. For individuals, the tax returns should be filed on or before 30th June of the succeeding year.
For non-individuals, the return is due on or before the last day of the sixth month after the end of the accounting period. For all categories of Taxpayers, the tax returns are filed through the iTax platform.
Withholding Tax is deducted at source on certain specified sources of income such as, interest, dividends, royalties, management, professional or training and contractual fees, commissions, pensions, rent received by non-resident person. Withholding tax is a form of advance income tax since the withholdee will be able to claim the amount withheld as a tax credit.
Withholding tax rates vary depending on the income on which it is imposed and also depending on whether the withholdee is a resident or non-resident. The payer of the income is responsible for deducting and remitting the tax to the Commissioner on or before the 20th day of the following month.
For the countries that have a entered into a Double Taxation Agreement/Treaty, preferential tax rates apply depending on the terms of the treaty. At Appendix I we have listed the countries with which a Kenya has entered into a Double Taxation Treaty/Agreement.
PAYE is a type of income tax that applies to employment income. The obligation of remitting PAYE rests with the employer and PAYE is a final tax as regards employment income. Employers deduct PAYE on the prevailing individual rates and have an obligation to remit it on or before the 9th day of the month after that which the salary relates. Employers file monthly PAYE returns which should be filed on or before the 9th day of the month after that which the salary relates.
The prevailing individual tax rates in the year 2018 are as shown below;
|Annual Income||Monthly Income||Tax Rate||Compulsive tax p.a.||Compulsive p.a.|
|0 to 147,580||0-12,298||10%||1,230||14,758|
|564,709 and above||Above 47,059||30%|
Capital Gains Tax is imposed on gains made on transfer of property. The rate is 5% and this is a final tax. The tax should be remitted on or before the 20th day of the subsequent month after the date of transfer of the property.
Corporation tax is a form of Income Tax that is levied on corporate bodies such as Limited Companies, Trusts, and Co-operatives. Resident Companies are taxable at a rate of 30% while non-resident companies are taxable at the rate of 37.5% on taxable income. For purposes of taxation, a body corporate is any non-individual entity. A lower corporation tax rate is available for the following types of entities;
For the first 5 years new assemblers of motor vehicle shall be paying 15% corporation tax with effect from 1st January 2018.
Export Processing Zones (EPZ), Enterprises operating within the EPZ’s enjoy the following benefits:
Listed companies have preferential rates as follows;
These companies are entitled to a lower corporation tax at the rate of 15% for the year of income in which it constructed the units. This is subject to approval by cabinet secretary responsible for housing.
Capital Deductions are incentives to investors on the capital expenditure incurred on Industrial buildings and purchase of machinery used to produce income. They are available to body corporates and are claimed against corporation tax.
Capital deductions are made on expenditure incurred in respect of the following;
a) Wear and tear allowances in respect of:- Tractors, Combine Harvesters, Heavy earth-moving equipment and similar Heavy self-propelling machinery, 37.5%.
b) Industrial Building Allowance (on straight line) in respect of capital expenditure on: Educational Buildings, Hostels and Training facilities – at 50%
c) Farm Works Allowance (on straight-line basis) in respect of capital expenditure incurred on a farm – 100%
d) Investment Allowance (once only at a given percentage) in respect of capital expenditure on:- Hotel sector on the buildings, which are certified as Industrial Building under the Act; 100%.
Companies that have inter-company transactions with related third parties outside Kenya have an obligation to maintain a transfer pricing policy. Transfer pricing documentation shows whether a company’s transactions with these related entities have an arm’s length price.
This is an indirect tax imposed on the supply of goods and services and it is primarily regulated through the Value Added Tax Act. The tax is passed on to the ultimate consumer of the goods or the recipient of the service. The prevailing VAT rates are; the general rate (16%), petroleum products (8%) and zero rate (0%).
The Commissioner of Taxes may appoint any taxpayer as a withholding VAT agent in which case the person so appointed would be under an obligation to withhold 6% of the taxable value and remit it to the revenue authority on or before 20th of the month after that in which the supply was made.
Value added tax is applicable on;
A person who makes or expects to make supplies that are subject to VAT whose value exceeds five million shillings over a twelve-month period is liable to register for VAT. On being registered for VAT, the registered person will be able to claim input tax arising from purchases as against the output VAT (arising from sales).
VAT is due monthly and should be remitted on or before the 20th day of the month after that in which the supply took place. A VAT return should be filed monthly by persons registered for VAT. The due date for submitting returns is on or before 20th of the month following that which the supplies were made.
Failure to submit and late submission of returns or submission of payment returns without payment of the tax due is liable to a default fine of Kshs 20,000 or 5% of tax due, whichever is higher.
A penalty of 20% applies on shortfall of taxes paid if the shortfall was not deliberate and 75% on the shortfall if it is deliberate. Interest of 2% per month or part thereof is also levied on the amount remaining unpaid after the due date.
Excise Duty is an indirect tax and it applies on select goods and services.
Examples of excisable goods include cigarettes, certain beauty products, water, food supplements, spirits, etc and examples of excisable services include money transfer, mobile cellular phone services, other wireless telephone services, etc. The excise duty rates are prescribed for each good or services.
Excise Duty returns should be filed on or before 20th of the subsequent month and the excise duty should also be remitted on or before the 20th of the subsequent month.
Customs Duty is enforced in East Africa by the East African Community Customs Management Authority for all the member states of the region. This authority works with the Revenue Authorities in the respective East Africa Community countries to enforce customs duties and to collect the customs duty.