Income tax is a direct tax that is imposed on income derived from business, employment, rent, dividends, interests, pensions among other incomes. Individual Income Tax is charged for each year of income on all the income of a person, both residents and non-residents, derived/earned from the country’s establishments, whether private or public. There are however different methods of collection of these depending of the type of income involved as shown below:
Pay As You Earn (PAYE) – Payable from employees’ salary.
Withholding Tax – Payable from fees charged by offering of professional services.
Installment Tax – Payable in regards to estimated profits of a business entity.
Advance Tax – Payable during licensing of commercial motor vehicles.
The tax payable by an individual is usually reduced by an amount referred to as tax relief and insurance relief for persons with insurance covers. Tax relief is an incentive that reduces the amount of tax that a person has to pay and is always at a flat rate of Kshs. 16,896 per year or Kshs. 1,408 each month. Insurance relief on the other hand ONLY applies to life, education with a maturity period of at least ten years and health insurances respectively. Non-residents are however NOT entitled to any personal tax reliefs.
In Kenya, people living with disability are exempt from paying tax for their first Kshs. 150,000 monthly incomes. We will look at the requirements for exemption by Kenya Revenue Authority (KRA) in a future article. It is mandatory for each person with a KRA PIN to file individual income tax and this has to be done between 1st January through 30th June of the following year, failure to which results in penalties for late filing and late payment at 5% of the tax due with a minimum of Kshs. 20,000 and an additional 1% interest per month on the unpaid tax until fully paid in the case of late payment.
The Kenyan taxman has in the recent past invested heavily in technology to ease this process to the taxpayers. Submission of income tax returns is today done online through iTax while payments can be done through the country’s popular mobile money platform, MPESA. KRA accepts filing of nil returns for people who don’t have any income stream yet, mostly being university students.
Involve us today and never worry about being penalized on matters taxation as we’ll always ensure all your individual or business tax issues are sorted. We also offer advice on the best way forward in cases where penalties are already in place.