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</script>Kenya
is a country in East Africa with a population of over 50 million people. The
government of Kenya relies on tax revenue to fund its operations and deliver
public services. Therefore, the tax system in Kenya is a crucial aspect of the
country's economic and social development. This paper aims to provide an
overview of Kenya's tax regulations, including the types of taxes, tax rates,
tax administration, and recent tax changes.
Types
of Taxes in Kenya
Kenya
has a comprehensive tax system that includes several types of taxes, including
direct and indirect taxes. Direct taxes are levied on individuals and
corporations based on their income or profits, while indirect taxes are imposed
on goods and services.
1.
Income Tax
Income tax is the primary source of
revenue for the Kenyan government. The Income Tax Act of 1974 governs the
taxation of income in Kenya. The act provides for progressive taxation, with
different tax rates for different income brackets. In Kenya, income tax is administered by the Kenya Revenue
Authority (KRA), which is the government agency responsible for collecting
taxes on behalf of the government.
The income tax rates in Kenya are progressive,
with higher earners paying a higher percentage of their income in tax. The
current income tax rates in Kenya for individuals are as follows:
·
Income up to Ksh
12,298 per month is exempt from tax.
·
Income above Ksh
12,298 per month but less than Ksh 24,000 per month is taxed at a rate of 10%.
·
Income above Ksh
24,000 per month but less than Ksh 40,667 per month is taxed at a rate of 15%.
·
Income above Ksh
40,667 per month but less than Ksh 57,333 per month is taxed at a rate of 20%.
·
Income above Ksh
57,333 per month but less than Ksh 76,667 per month is taxed at a rate of 25%.
·
Income above Ksh
76,667 per month is taxed at a rate of 30%.
In addition to the above rates, there are also
various deductions and exemptions that can reduce a taxpayer's taxable income.
For example, contributions to a registered pension scheme, medical expenses,
and interest on mortgage loans can be deducted from a taxpayer's income before
tax is calculated.
Employers are
responsible for deducting income tax from their employees' salaries and
remitting the tax to the KRA on their behalf. Self-employed individuals are
responsible for calculating and paying their own income tax to the KRA.
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</script>For non-resident individuals, the
tax rate is a flat 25% of their taxable income.
For companies, the tax rate is a
flat 30% of their taxable income. However, newly established companies are
eligible for a reduced tax rate of 15% for the first three years of operation.
2.
Value Added Tax (VAT)
Value
Added Tax (VAT) is an indirect tax levied on the supply of goods and services
in Kenya. The VAT Act of 2013 governs the administration of VAT in Kenya. The
standard VAT rate is 16% on the value of taxable goods and services. However,
some goods and services are exempt from VAT, while others are zero-rated.
Exempt
supplies are those that are not subject to VAT, such as education, healthcare,
and financial services. On the other hand, zero-rated supplies are those that
are subject to VAT at 0%, such as exports, maize, wheat flour, and bread.
3.
Excise Duty
Excise
duty is an indirect tax levied on specific goods and services, such as tobacco,
alcohol, and petroleum products. The Excise Duty Act of 2015 governs the
administration of excise duty in Kenya. The tax rate varies depending on the
type of product or service, with rates ranging from 10% to 100%.
4.
Customs Duty
Customs
duty is a tax levied on imported goods into Kenya. The East African Community
(EAC) Common External Tariff governs the administration of customs duty in
Kenya. The tariff provides for different rates depending on the type of goods
and the country of origin. The average rate of customs duty in Kenya is about
25%.
5.
Withholding Tax
Withholding
tax is a tax deducted at source from payments made to non-resident individuals
and companies. The Income Tax Act of 1974 governs the administration of
withholding tax in Kenya. The tax rate varies depending on the type of payment
and the residency of the recipient.
For non-resident individuals and companies, the withholding
tax rate is a flat 20% of the gross payment. However, some payments, such as
dividends and interest, are subject to lower rates of withholding tax under
double taxation treaties between Kenya and other countries. Withholding tax, also known
as retention tax, is a tax that is withheld by an employer or other paying
agent from the income of the employee or payee. The amount of tax withheld is
based on the amount of income earned and the applicable tax rate.
The
purpose of withholding tax is to ensure that taxes are collected throughout the
year, rather than only at tax filing time. It also helps to ensure that
individuals and businesses do not underreport their income or fail to pay their
taxes.
Withholding
tax is commonly applied to income such as wages, salaries, bonuses, and
dividends. The amount of tax withheld is usually a percentage of the total
income earned, and the rate varies depending on the jurisdiction and the type
of income.
It
is important to note that the withholding tax does not necessarily represent
the total tax liability of the individual or business. When the individual or
business files their tax return, they will calculate their actual tax liability
and any excess withholding tax will be refunded to them, or any shortfall will
need to be paid.
Withholding
tax is used in many countries, including the United States, Canada, Australia,
and the United Kingdom, among others. The rules and regulations regarding
withholding tax can vary significantly between jurisdictions, so it is
important to understand the specific requirements in your location.
Tax Administration in Kenya
Tax administration in Kenya is overseen by the Kenya Revenue
Authority (KRA), which is responsible for collecting and managing tax revenue
in the country. The KRA was established under the Kenya Revenue Authority Act
of 1995 and is governed by a board of directors appointed by the President of
Kenya.
The
KRA is responsible for administering various taxes in Kenya, including income
tax, value-added tax (VAT), excise duty, customs and excise taxes, and other
miscellaneous taxes. The authority is also responsible for enforcing tax laws
and regulations, conducting audits, and collecting and remitting tax revenues
to the government.
The
KRA has established various channels to facilitate tax compliance by taxpayers,
including online tax payment platforms, mobile payment systems, and tax service
centers located across the country. Taxpayers are required to register with the
KRA and obtain a Personal Identification Number (PIN) to enable them to file
their tax returns and make tax payments.
In
addition to tax administration, the KRA also plays a critical role in revenue
mobilization and economic development in Kenya. By collecting and managing tax
revenues, the KRA helps to fund critical public services and infrastructure
projects, which are crucial for improving the standard of living and promoting
economic growth in the country.
