Taxation of per diem

The KRA has published final guidelines to govern the taxation of “per diem” allowances the highlights of which are as follows:

• Employer to maintain documented policy on “per diem” stipulating among others, rates applicable for different cadres and localities and accountability procedures;
• Documentary evidence of travel to be retained;
• No specific ceilings prescribed in view of Section 5 (2) (iii) which sets a tax free limit of sh. 2,000;
• Employers may seek prior opinion from the KRA on tax status of proposed payments;

The full text of the final guideline is available at Here or from KRA offices countrywide. 

Motor Vehicle Benefit

The taxation of motor vehicle benefit enters a new phase after the publication of the final set of rules to govern its administration.

Under the new rules, motor vehicle benefit will continue to be taxed as provided under Section 5(2B) of the Income Tax Act except where proof is provided that an employee has “restricted use” of a motor vehicle. Strict proof of “restricted use” will be demanded of employers complete with what the Commissioner may consider to be fool proof use control and monitoring procedures.

In view of the difficulties expected in policing stand alone cases, “restricted use” will be considered only in respect of groups or classes of staff whose nature of duties provide a case for discounted benefit.