1. Income Tax
Income tax is a tax charged for each year of income, upon all the income of a person whether resident or non-resident, which is accrued in or was derived from Kenya.
Income Tax is imposed on;
- Business income from any trade or profession
- Employment income
- Rent income
- Dividend and Interests
- Pension income
- Income from a
- Natural resource income among others
There are different methods of collecting income tax from companies & partnerships, based on their sources of income.
These methods include:
a. Corporation Tax
This is a form of Income Tax that is levied on corporate bodies such as Limited companies, Trusts, and Co-operatives, on their annual income.
Companies that are based outside Kenya but operate in Kenya or have a branch in Kenya pay Corporation Tax on income accrued within Kenya only.
b. Pay As You Earn (PAYE)
This is a method of collecting tax at source from individuals in gainful employment.
Companies and Partnerships with employees are required to deduct tax according to the prevailing tax rates from their employees' salaries or wages on each payday for a month and remit the same to KRA on or before the 9th of the following month.
c. Withholding Tax (WHT)
This is a tax that is deductible from certain classes of income at the point of making a payment, to non-employees.
WHT is deducted at source from the following sources of income:
- Management or professional fees (including consultancy, agency or contractual fees)
- Rent received by non-residents
- Other payments specified
Companies and partnerships making the payment, are responsible for deducting and remitting the tax to the Commissioner of Domestic Taxes.
d. Advance Tax
This is a tax paid in advance before a public service vehicle or a commercial vehicle goes for the annual inspection.
e. Installment Tax
Installment tax is paid by persons who have tax payable for any year that amounts to Kshs. 40,000 and above.
2. Rental Income Tax
This is a tax charged on rental income received from renting out property. Taxation of rental income depends on how the rented property was used for residential or commercial purposes.
All persons individuals, partnerships and companies that rent out property to other persons for either residential or commercial use are required to pay income tax on rent received
To facilitate compliance, KRA appoints agents to withhold and pay, a percentage of the gross rent as tax. These agents can be verified via the agent checker on iTax.
3. Value Added Tax (VAT)
Value Added Tax is charged on supply of taxable goods or services made or provided in Kenya and on importation of taxable goods or services into Kenya.
While companies & partnerships can voluntarily register for VAT they MUST register if their annual revenue exceeds Kshs. 5,000, 000.
To facilitate compliance, KRA appoints agents to withhold and pay, VAT on supplies made. These agents can be verified via the agent checker on iTax.
4. Excise Duty
This is a duty of excise imposed on;
- goods manufactured in Kenya, or;
- imported into Kenya and specified in the 1st schedule to Excise Duty Act, 2015.
Companies and Partnerships dealing in excisable good and services are required to pay excise duty.
The List and types of Excisable goods and services are listed in the 5th Schedule as read together with Section 117 (1) (d) of the Customs and Excise Act, CAP 472 Laws of Kenya.
- Mineral water
- Juices, soft drinks
- Cosmetics and Preparations for use on hair
- Other beer made from malt
- Opaque beer
- Mobile cellular phone services
- Fees charged for money transfer among others
5. Capital Gains Tax (CGT)
This is a tax chargeable on the whole of a gain which accrues to a company or an individual upon transfer ofsituated in Kenya, whether or not the property was acquired before 1st January, 2015.
It took effect on 1st January 2015.
6. Agency Revenue
This is a type of payment that KRA collects on behalf of various revenue collection agencies in Kenya.
The two types of Agency Revenue include;
- Stamp Duty
- Betting and Pool Tax
a. Stamp Duty
Stamp duty is a tax charged on transfer of properties, shares and stock.
It is collected by the Ministry of Lands, which has seconded the function to Kenya Revenue Authority (KRA).
b. Betting Tax
Betting Tax is chargeable on the(GGR) of a bookmaker at the rate of 15% as provided by Section 29A of the Betting, Lotteries and Gaming Act, 1966.
Betting, gaming and Lottery businesses are required to withold as tax and remit to KRA 20% of the winnings being paid out to winners.
Excise Duty on Betting is chargeable at the rate of 20% of the, commencing 7th November, 2019.
6. Turnover Tax
Turnover Tax(TOT) is a tax charged on gross sales of a business as per Sec. 12(c) of the Income Tax Act.
First introduced vide Finance Act 2006, replaced by Presumptive Income Tax vide Finance Act 2018 then reintroduced vide Finance Act 2019.
The effective date of TOT is 01/01/2020
Who should pay TOT?
Turnover Tax (TOT) is payable by resident persons whose gross turnover from business is more than Kshs. 1,000,000 and does not exceed or is not expected to exceed Kshs 50,000,000 in any given year.
TOT does not apply to:
- Persons with business income below Ksh. 1,000,000 and above Kshs. 50,000,000 per annum
- Rental Income,
- Management, Professional and Training Fees,
- Any income that is subject to a final withholding tax under the Income Tax Act
Eligible taxpayers are advised to log onto iTax, add the TOT obligation, file the monthly returns and make payment.
A taxpayer whose turnover is within the above threshold, but chooses not to be taxable under TOT, shall be deemed to have informed the Commissioner of this choice by not registering for TOT.
What is the rate for Turnover Tax (TOT)?
- Turnover Tax is charged at the rate of 1% on gross monthly sales.
- Expenses are not deductible.
- This is a final tax.
Filing of TOT Returns
TOT will be filed and paid on a monthly basis. The due date is on or before 20th of the following month.
Turnover Tax Return
- Login to iTax
- Under the returns menu, select file return, then turnover tax and download the excel return.
- Complete the return and submit
- After filing the return, go to payment menu, select 'payment', select the amount payable, and generate a payment slip.
- Make the payment at a partner bank or through M-pesa
You can now also file and pay your TOT using the new KRA M-service App.
What is the penalty for Non-Compliance?
- TOT late filing penalty is Kshs. 1,000 per month (wef 25/04/2020)
- Late payment penalty is 5% of the tax due
- Interest on unpaid tax is 1% of the principal tax due.
- The tax rate reduction from 3% to 1%
- The removal of Presumptive Tax (wef 25.04.2020)
- The change in filing regime from quarterly basis to a monthly basis.
- It is not mandatory for one to be registered for both Turnover Tax and VAT.
- For taxpayers with various specified sources of income, where there is a source that is not subject to TOT like Rental Income, a taxpayer has a choice of being under other provisions of the Income Tax Law provided that a notice to the Commissioner is done.