Governments require sustainable sources of funding for social programs and public investments to promote economic growth and development. The shared aim of a successful, useful, and orderly society can only be attained with the help of programs that provide health, education, infrastructure, and other services. Additionally, such programs demand that governments generate income. In addition to financing public goods and services, taxation is a crucial component of the social compact that unites people and the economy. Overall, how taxes are raised and spent is what determines a government’s basic legitimacy. 

Depending on the business activity, location, or certain specific details each business has specific requirements regarding tax compliance and reporting. For instance, all businesses operating in Kenya must file returns and pay taxes. Sometimes a business is also responsible for collecting and remitting taxes paid by others to the Kenya Revenue Authority. As ignorance is no defence in law, businesses that fail to comply with tax regulations often end up paying huge tax penalties and fees. Below are KRA’s guidelines on how businesses are expected to file and pay taxes. 

1. Pay As You Earn (PAYE)

PAYE is deducted monthly at the prevailing individual income tax rates, on or before the 9th of the following month. 

How to file for PAYE?

PAYE returns are filed online via itax
Companies and Partnerships without PAYE to remit should file a NIL return via iTax.

How to pay for PAYE?

After filing the PAYE return, generate a payment slip online via iTax and make payment at any of the KRA-appointed banks. 

2. Corporation Tax

A corporate tax is a tax on a corporation’s profits. What is the Corporation Tax rate?

• Resident Companies are taxed at a rate of 30%.
• Non-resident companies are taxed at a rate of 37.5%.
  Some companies enjoy corporation tax incentives and exemptions. 

How to file for Corporation Tax?

Corporation Tax is filed online via iTax by filing an Income Tax Company Return (IT2C Form), on or before the sixth month after the end of an accounting period.

For instance: a company whose accounting period runs from 1 Jan – 31st Dec is allowed up to 30th June of the following year to file their Income Tax – Company Return. Filing after 6 months attracts a penalty.

The Return covers one fiscal year which is a period of 12 months within which the corporation chooses to make its financial statements. 

How do I pay for Corporation Tax?

Generate a payment slip via iTax and make payment at any of the KRA-appointed banks. If the annual tax liability is projected to exceed Kshs. 40,000, then you should pay in instalments via iTax. This is called Installment Tax. 

3. Installment Tax

Instalment Tax is paid in advance at four equal instalments. It is paid before the year of income is over and before the accounts of the business are prepared to establish the actual tax payable.

Instalment tax is computed in either of the following ways;

Prior year basis – Prior year tax payments are multiplied by one hundred and ten per cent. Current year basis – In this method, especially for new business or those who were in losses and turned to profitability, instalment tax is determined by estimating the current year profit and tax payable thereon

The following persons are not required to pay instalment taxes;

• Individuals whose only income is from employment and PAYE has been deducted.
• Individuals whose final liabilities or whose tax payable from other sources of income in a year is below Kshs. 40,000.
• Instalment taxes are not payable by persons who are subject to Turnover Tax (TOT). 

What is the rate of taxation for Installment Tax?

Schedule of Installment Tax payments:

• 25% by the 20th day of the 4th month.
• 25% by the 20th day of the 6th month.
• 25% by the 20th day of the 9th month.
• 25% by the 20th day of the 12th month. 

Instalment Tax for companies in the Agricultural Sector

• 75% which is the first 3 instalments, combined and paid by the 20th day of the 9th month.
• 25% is paid by the 20th day of the 12th month.

After the accounts of the business are prepared to establish the actual tax payable, any balance of tax payable should be paid on, or before, the last day of the 4th month following the end of the year of income or the accounting period.

4. Withholding Tax

Withholding Income Tax is a source-retained tax. When making certain payments, the payer withholds tax from the receiver at the appropriate rate and remits to the Kenya Revenue Authority on their behalf.

What is the rate of taxation for Withholding Tax?

Withholding Tax rates vary depending on the income, and whether the recipient of the income is resident or nonresident. A business is required to generate a payment slip and present it, with the tax due, at any of the KRA-appointed banks.

After successful payment of Withholding Tax, both the Withholder and Withholdee will receive a withholding certificate via email.

5. Advance Tax

Advance tax is paid before a public service vehicle or a commercial vehicle goes for an annual inspection.

What is the rate of taxation for Advance Tax?

• For vans, pickups, trucks and lorries – whichever is higher between Kshs. 2, 400 and Kshs. 1, 500 per ton of load capacity per year.
• For saloons, station wagons, mini-buses, buses and coaches – whichever is higher between Kshs. 60 per passenger capacity per month and, Kshs. 2, 400 per year. 

NOTE: Advance Tax is not a final tax. You are thus required to file the annual Income Tax return and pay any additional tax due.

6. Rental Income Tax

Rental income tax is a tax charged on income generated from both residential and ono-residential buildings (commercial buildings).

What is the rate of tax for Rental Income Tax?

Taxation of Rental Income depends on whether the property is for residential or commercial purposes.
Residential Rental Income Tax.

It is taxed at 10% on the gross rent received and no expenses are allowed. The tax should be filed monthly via iTax, on or before the 20th of the following month.

NOTE: Residential Rental Income Tax is a final tax. Therefore, you do not have to declare it on your annual Income Tax return.

Commercial Rental Income Tax

It is taxed at the respective annual income tax rates and filed through the annual Income Tax Returns, on or before the last day of the 6th month after the end of the accounting period (irrespective of the amount). 

7. Value Added Tax (VAT)

Value Added Tax is a tax charged on the supply of taxable goods or services made or provided in Kenya and on importation of taxable goods or services into Kenya.

What is the rate of taxation for VAT?

The two tax rates for VAT are:

• 16% – general rate of tax and is applicable to taxable goods and taxable services.
• 8% – On petroleum products except for Liquefied petroleum Gas
• 0% – applies to supplies or importation of goods and services that are of the description for the time being specified in the Second Schedule of the VAT Act, 2013.

How to file for VAT?

VAT returns are filed online via iTax, on or before the 20th of the following month, by filling out a VAT3 Return form. 

How to pay for VAT?

After filing your VAT returns online, generate a payment slip for any tax due and make payment to any of the KRA-appointed banks or through any mobile money transfer platform.

8. Excise Duty

Excise duty is a form of tax is an indirect tax imposed on the importation, local manufacture of certain products and, supply of excisable services

What is the rate of taxation for Excise Duty?

The rate varies depending on the goods and services as specified in the 1st Schedule of the Excise Act, 2015.

Types of Excise Duty

• Specific Duty Rate: This is where a specific amount of tax is charged per unit of measure on an excisable product e.g. Kshs. 120 per litre of spirit.
• Ad Valorem Duty Rate: This is where a percentage rate of duty is charged on the value of an excisable product.

Excise duty on imports is charged on the sum of total Cost, Insurance and Freight (CIF) and amount of customs duty (if any) and;

For locally manufactured goods, it is charged on a specific unit of measure or ad Valorem rate is charged on the Ex-factory selling price excluding VAT (if any), cost of excise stamps (if any) and cost of returnable containers (if any).

How to pay for Excise duty?

• Excise Duty on imports is paid at the port of entry.
• Domestic Excise Duty should be paid by the 20th day of the following month.
• Generate a payment slip via iTax and present it to any of the KRA-appointed banks to make the payment. 

9. Capital Gains Tax (CGT)

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive.

What is the rate of tax for Capital Gains Tax?

• 5% of the net gain (Net Gain is Sales Proceeds, less the Acquisition and Incidental cost) after the sale of land or building.
• 0% on marketable securities. 

CGT is a final tax. Thus it is not subject to further taxation after payment of the 5% rate of tax.

When is Capital Gains Tax due?

CGT is due and payable on or before the date of lodgment of application documents for the transfer of property at the land’s office. 

10. Agency Revenue

This is a type of payment that we collect on behalf of various revenue collection agencies in Kenya. There are;

• Stamp Duty
• Land Rent
• Widows & Children’s Pensions Fund
• Sugar Development Levy
• Betting and Gaming taxes

Conclusion

Tax compliance and reporting do not have to be challenging. The easiest approach is to make sure you have the appropriate registration to collect taxes or to find a professional tax compliance partner. You can track requirements, submit applications in the proper format on time, fulfil application deadlines, and receive confirmation and progress updates with the aid of a reputable compliance partner like Crown Tax.

We are all about providing professional tax consultancy and advisory services. Get in touch by;

Calling: 0713

Emailing: info@crowntax.co.ke