Tax in Kenya is collected by Kenya Revenue Authority (KRA), KRA collects four main taxes: Customs and Excise, Income Tax, Value Added Tax (VAT) and motor vehicle road licences and driving licences. It may collect any other tax assigned it by the government.
Kenya Revenue Authority (KRA)
The Kenya Revenue Authority was established in 1995 by an Act of Parliament, under Cap. 469 of the Laws of Kenya. The Authority has the responsibility of assessing, collecting and accounting for the taxes.It collects revenue and administers the revenue Acts for the purpose of facilitating trade.
The Authority collects four main taxes: Customs and Excise, Income Tax, Value Added Tax (VAT) and motor vehicle road licences and driving licences.
It may collect any other tax assigned it by the government. The Authority is headed by a Commissioner General. There is a board of directors headed by a chairman. There are three Revenue Commissioners, the Register of Motor Vehicles and heads of various service departments.
The KRA has introduced remarkable efficiency and professionalism in tax administration and operations. In the period of about eight years it has been in existence, its impact is clearly felt in the society. The headquarters, revenue and support departments, are all housed at Times Tower building in Nairobi.
Taxes collected in Kenya are:
- Import duty
- Excise duty
- Income Tax
- Value Added Tax (VAT)
- Registration and transfer fee of motor vehicles and road and driving licences.
Other government revenues collected by the authority on agency basis include:
- Petroleum Development Fund
- Import Declaration and Fund (IDF)
- Foreign Motor Vehicle Inspection Fee
- Road Maintenance Levy
- Road Transit Toll Levy
- Aviation Revenue
- Revenue Stamps
- Kenya Bureau of Standards (KEBS) Levy
- Widows, Children and Parliamentary Pension Fund, Betting Tax
- Gaming (casino) Tax.
Whereas the Road Transport Department registers motor vehicles in Nairobi and Mombasa, it offers services through other KRA stations for revenue departments, and has its own staff in a number of towns. Elsewhere, the District Commissioners execute some RTD services on behalf of the Commissioner.
The Customs and Excise Department has its staff in every town with a main post office, in order to deal with chargeable goods arriving and being exported through post office. in addition, the department hasits offices in towns with bonded warehouse.
A tax payer may lodge a claim for any credit that he was entitled to but was not given.
Income Tax in Kenya
lncome tax is almost as old as the customs duty in Kenya. Both taxes were introduced in the country by the colonial government and have existed ever since. Unlike the VAT and Customs and Excise, income tax is a direct tax on individuals and limited companies. All the other taxes are indirect in the sense that they are indirectly related to your consumption of taxable goods and services regardless of your size of income. The tax is administered by the Commissioner of income Tax, under the Kenya Revenue Authority.
Anyone with chargeable income must notify the Commissioner of it, declare and pay tax thereon. lf you wait until the Commissioner finds you out, you will be charged penalty and interest on the unpaid tax for the period the tax remained unpaid.
Tax is charged on income. That income must have accrued or be derived from Kenya. Such income may be earned by residents or non-residents.
Sources of taxable income in Kenya
- Business for whatever period of time carried on,
- Employment or services rendered,
- A right granted to another for use or occupation of property,
- Dividend and interest,
- Any amount deemed to be income of a person under the income tax Act or by rules made thereunder.
Income tax is chargeable on people. ln law, these people are either individuals or limited companies (including trusts). The income of a partnership is charged on the partners who share that income. Apart from collecting taxes directly, the Commissioner may appoint agents to collect taxes on his behalf and remit that tax (and account for) to him.
These agents are:
- Employers of employees monthly taxes called(PAYE).
- Other taxes called withholding tax.
The tax is collected at the point of payment by the payer who withholds it and remits to the Commissioner. Withholding tax is payable by the 20th of the month following the month of collection. PAYE is payable by the 9th of the month following the month of deduction. Advance Tax on commercial motor vehicles is payable to the Commissioner of Income Tax. It is charged on both cargo and passenger vehicles using the prescribed rates.
Rates of tax in Kenya
Individual rates of tax are graduated whereas companies have a fixed rate of tax. Equally, individuals enjoy some tax relief, which means that personal relief is a threshold below which no tax is payable. Not so with limited companies which must pay tax on the whole profit they make. A limited company does not enjoy the personal relief. A partnership is not a person in law. Its income is therefore distributed among the partners and taxed on them.
Late payment of tax attracts a penalty of 20% and monthly interest of 2%. Married women can now be taxed individually under the Income Tax Act. Previously they could be taxed under their husbands return of income. They enjoy the same rights. They can submit their own returns and be assessed for tax separately from their husbands, if they want. Men and single women are taxed individually.
Personal identification Number (PIN) is issued by the Commissioner. It is issued to both residents and non-resident people living in Kenya.
PIN is required in many public offices where you may require service. In order to be able to get these services, you need PIN. To apply for PIN, you need to complete a PIN application form (obtainable from the income Tax Department ofﬁces) and attach your ID or passport copies. Limited companies, partnerships and trusts must also obtain their PIN.
There are various allowances given on the wear and tear of capital expenditure on assets being used in the business. Such assets include industrial buildings, motor vehicles, farm works (on farming), machinery, general plant and equipment as well as the approved hotels (tourist class usually). Like PAYE for employees, business people are now required to pay their taxes in instalments. The first instalment is paid four months after the last accounting business date, then 6, 9, 12 and the final tax 14 months after the end of the accounting date. A refund arise when one has paid more tax than the actual assessed tax. Tax payable includes any penalties and interest that may accrue on one‘s tax account. A taxpayer lodges a claim for any credit on tax that one was entitled to, for example personal relief, and was not given.
The Value Added Tax in Kenya (VAT)
VAT is a consumption tax charged on local and imported goods and services. It is charged under CAP. 476 of the Laws of Kenya. It came into being in 1990 after replacing the Sales Tax.
The VAT Department is administered under the Kenya Revenue Authority and is headed by a Commissioner. The Department has 17 branches spread in the country.
The tax is charged and collected at the point of sale by any VAT registered business. This tax is paid to the Commissioner monthly through the banks and the returns filed with the Commissioner. In case of imported goods, the VAT is collected at the point of entry by the customs officers on behalf of the commissioner.
Anyone doing business, as a sole trader in partnership or limited company, must register with the Commissioner as an agent for VAT. You need PIN, copy of registration of business or business incorporation certificate and then complete a registration application form.
You need to register as VAT agent if:
- You offer for sale goods or services whose sales value exceeds KShs 3,000,000 per annum.
- You are a professional. There is no turnover limit for services rendered.
- You are about to commence manufacturing taxable goods or supplying taxable services which in the opinion of the Commissioner will exceed any of the values prescribed. In the 6″‘ Schedule of the VAT Act.
- You deal or offer for sale designated goods or services irrespective of the amount. A designated person is the one who deals in designated goods or services.
Designated goods are certain sale items like jewellery, timber, pre-recorded music and domestic electronic appliances, motor vehicles parts and accessories, household or domestic electric or electronic apparatus and appliances. They are taxable at every stage of sale.
Designated services are:
- Accountancy services including auditing, book-keeping.
- Legal and arbitration services including any services supplies in connection therewith.
- Services supplied by auctioneers, estate agents and valuers.
- Services supplied by clearing and forwarding agents.
- Motor vehicles parts and accessories, household or domestic electric or electronic apparatus and appliances.
- You sell in any one year four or more motor vehicles.
- The Commissioner is satisfied that the interests of the business requires registration, though certain registration requirements for eligibility are not met.
- The Commissioner is satisfied that the interests of the business requires registration even though you do not meet certain eligibility requirements defined in terms of their turnout levels or supply of certain designatory goods and services.
Designated goods and services have no sales value limit.
Customs and Excise Duty in Kenya
Customs and Excise Department in Kenya is headed by a Commissioner and is managed under the Kenya Revenue Authority. Customs is a term that is used to refer to the government taxes that are levied at points of entry of a country on imports and exports (though rarely). Such taxes include import duty, Excise and VAT or exports. its collection also includes implementing laws on forbidden goods by blocking them from entering the country or confiscating. Goods that are restricted for domestic market are not allowed to leave the country.
It is levied on imports whether they are for private or commercial use. For this reason, customs offices are to be found at the country‘s entry points: ports (Mombasa and Kisumu), borders (Malaba, Busia, Lunga Lunga, Taveta, Mandera and others) airports (Jomo Kenyatta international Airport – Nairobi, Moi international Airport — Mombasa, Eldoret, and other airports/airstrips handling aircrafts from neighbouring countries — like the Wilson Airport in Nairobi).
Excise tax is levied on a few items consumed in Kenya. These goods may be manufactured in Kenya or imported. For this reason, this tax is collected alongside lmport Duty at the entry points as well as at the manufacturers’ premises when excisable goods are being released to the market. These Excisable goods are: cars, tobacco (and tobacco products), beer and perfumery as well as the bottled water and fruit juices.
Currently, importers are required to clear their goods through a registered clearing and forwarding agent. They generally charge a fee of0.5%to 1.0% of the value of goods to be cleared. However, motor cars are charged a fee of between KShs 10,000 — 15,000. Since these agents are many, it is easy to choose a good one. (The fee is not fixed but you can find an agent who may accept less and do a good job).
Exports do not attract any tax except for the raw hides and skins which attract 20% export duty in order to protect local tanneries. in addition, there are tax incentives for the manufacturers who produce for foreign markets under the EPZ, EPPO arrangements.