Introduction
These are various posts of tax tips to assist individual taxpayers to improve tax compliance, save on extra tax payments (fines, penalties and interests) and create wealth.
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(Photo by Waka)
Note the tax Tips are updated frequently.
Take advantage of extension of tax amnesty period – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (9/5/2017)
The Finance Act 2016 declared a tax amnesty whose operation is under the provisions of Section 37B of the Tax Procedures Act (2015) The tax amnesty is for all income earned from foreign investments by people whose tax base in Kenya. The income was not declared in Kenya. The tax amnesty covers all income earned for any year of income that ended on or before 31st December 2016.
The Cabinet Secretary (CS) to The National Treasury during his March 2017 budget speech extended the period for filing the tax returns and transfer of the declared funds to Kenya for re-investments from 31st December 2017 to 30th June 2018. The reason for this extension was to enable the taxpayers to transfer the money and reinvest it in Kenya. Please note that the amnesty period was not extended.
Kenya will sign international agreements on exchange of information for taxation purpose starting 2018. This means that information about Kenyan’s investments abroad should be forwarded to KRA. In case a taxpayer did not apply for the tax amnesty, they will be required to pay all the taxes, fines, penalties and interests according to the provisions of the Income Tax Act.
Purchases Documents- Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (10/4/2017)
Every year, the income tax payable is based on the profits made in that year of income. The profits made are determined as the difference between total sales and total purchases with several adjustments. Every month, the VAT payable is established as the tax on the value-added which is the difference between the sales VAT and the purchase VAT.
Many individual taxpayers have paid extra taxes because of lack of cash purchase receipts and/or invoices. To minimize the amount of tax payable, an individual taxpayer must do the following:
- Recognize and appreciate the importance of cash purchase receipts and invoices in tax reporting – they will enable the taxpayer to minimize the amount of tax payable whether income tax or VAT.
- Do not make any payments without cash purchase receipts or invoices.
- Always ask for cash purchase receipts and invoices.
- When issued with cash purchase receipts and invoices, pick them, you will need them later.
- When you pick the cash purchase receipts and invoices, do not throw them away, you will use them later.
- Utilize the cash purchase receipts and invoices in your tax reporting.
- Report the cash purchase receipts and invoices within the stipulated time frames.
- Ensure you are issued with cash purchase receipts and invoices that have ETR and PIN details.
These eight steps will enable the taxpayer to minimize the amount of income tax they will pay yearly and the amount of VAT payable monthly.
Pay Tax When You Receive Payments – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (6/4/2017)
Business people always have things to do with money. Money is never enough. Hence, it is advisable to calculate the tax payable and make the tax payment immediately a person has been paid for any supplies (goods and services). KRA i-Tax platform allows making tax payment without a tax return. The tax returns can be made later when due.
Know Income Tax Rates – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (2/4/2017)
The following are the tax rates in Kenya as at the date of this post.
a) Employment income (PAYE)
All employment income from basic salary, benefits and allowances whether paid as stand-alone compensations or besides are currently subject to the following PAYE tax bands.
Per Year (kshs) Tax rate
- On the first 147,580 10 %
- On the next 139,043 15 %
- On the next 139,043 20 %
- On the next 139,043 25 %
- Income over 564,709 30 %
In addition, personal tax relief is ksh 16,896 per year.
b) Business income tax
Business income with tax under kshs 40,000 per year
For a person with income less than kshs 40,000 per year to pay, they are subject to taxation as if they are employed. Their annual incomes are currently subject to the PAYE tax bands as follows at the end of the year:
The following is a table of the new PAYE bands.
Per Year (kshs) Tax rate
- On the first 147,580 10 %
- On the next 139,043 15 %
- On the next 139,043 20 %
- On the next 139,043 25 %
- Income over 564,709 30 %
In addition, personal tax relief is ksh 16,896 per year.
Deduct business expenses from the income and pay the balance to KRA.
Business income with tax over kshs 40,000 per year
For individual business owners, if their annual income is more than kshs 40,000 per year, they have to continuously pay income tax throughout the year of income. However, within the year, they are expected to pay income tax on an instalment basis as follows:
- 1st instalment tax – 25 %.
- 2nd instalment tax – 25 %.
- 3rd instalment tax – 25 %.
- 4th instalment tax – 25 %.
- Balance of tax by 30th April the following year.
Deduct business expenses from the income and pay the balance to KRA.
When determining the tax payable for the year of income, an individual taxpayer with tax to pay of more than kshs 40,000 should use the followings PAYE tax bands.
Per Year (kshs) Tax rate
- On the first 147,580 10 %
- On the next 139,043 15 %
- On the next 139,043 20 %
- On the next 139,043 25 %
- Income over 564,709 30 %
In addition, personal tax relief is ksh 16,896 per year.
The taxpayer should then deduct all the tax paid on an instalment basis and pay the balance to KRA.
c) Turnover tax
Tax rate is 3 % of gross amount (no deductible expenses) per quarter.
d) Rental income
Residential
Annual rental income that is less than kshs 10 million – the tax rate is 10 % of gross rental income (no expenses are deductible).
Annual rental income more than kshs 10 million – tax paid at normal income tax rates. The tax rates are 30 % for residents and 37.5 % for non-residents. The tax is paid on an instalment basis.
- 1st instalment tax – 25 %.
- 2nd instalment tax – 25 %.
- 3rd instalment tax – 25 %.
- 4th instalment tax – 25 %.
Balance of tax by 30th April the following year.
Commercial
For landlords whose rental income is less than kshs 10 million, income tax is paid at the rate of 10 % per month of the rental income.
However, landlords pay income tax at the normal income tax rate if their rental income is more than kshs 10 million. The tax rate is 30 % for residents and 37.5 % for non-residents. The tax is paid on an instalment basis as follows:
- 1st instalment tax – 25 %.
- 2nd instalment tax – 25 %.
- 3rd instalment tax – 25 %.
- 4th instalment tax – 25 %.
- Balance of tax by 30th April the following year.
The landlords have the advantage of utilizing business expenses.
Withholding income tax on rental income
- For resident landlords, withholding tax on rental income is at the rate of 10 %.
- For non-residents landlords, withholding tax on residential and commercial rental income from buildings is at the tax rate of 30 % of the rental income.
e) Withholding income tax rates on supplies
Resident suppliers
- Resident suppliers of professional, management, technical and training services is 5 % to domestic consumers.
- Resident suppliers of construction services the tax rate is 3 % to domestic consumers.
Non-resident suppliers
- The withholding tax rates for the supply of the services by non-resident suppliers vary from 5 % to 30 %. However, the rates vary depending on whether there are double taxation agreements.
- The withholding tax rates on other fixed assets of non-residents such as aircraft, equipment leasing range from 5 % to 30 %.
Know VAT Rates – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (2/4/2017)
a) VAT on Domestic Supplies (goods and services).
a. This is the VAT applicable to goods and services produced locally.
b. The current tax rates are either:
- Exempt.
- Zero (0 %).
- Standard rate of sixteen per cent (16 %).
b) Withholding VAT
For resident suppliers of goods and services, the withholding tax rate is at 6 %.
c) VAT on imported services
The tax rates either exempt, 0 % or 16 %.
d) VAT on commercial rental properties
The VAT on commercial rental properties is at 16 %.
e) Withholding VAT on commercial rental income
Residents
The withholding VAT on commercial rental income for residents is at the rate of 6 %.
Non-residents
For non-residents, withholding VAT tax on commercial rental income is at the tax rate of 30 %.
Know Capital Gains Tax Rates – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (2/4/2017)
a) Land, Buildings and Securities
Transfer of land, buildings and securities (with exceptions) attracts tax at the rate of 5 %.
b) Extractive industry
Transfers in the extractive industry (mining and petroleum industry) also attract tax at the rate of 30 % for residents and 37.5 % for non- residents with permanent establishments in Kenya.
Know Domestic Excise Tax Rates – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (2/4/2017)
a) Specific duty rate
Tax charged per unit of measure – ranges from 5 % to 130 %.
b) Advalorem duty rate
Tax charged as a per cent rate on excisable goods – ranges from kshs 3 to kshs 2,500.
Know Standards Levy Tax Rates – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (2/4/2017)
a. The tax rate is at 0.02 % of ex-factory price.
b. The rate is subject to a minimum of kshs 1,000 per month and a maximum of kshs 400,000 per annum.
Know Sugar Development Levy Tax Rates – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (2/4/2017)
a. The tax rate for local production is 7 % ex-factory price at the mills
b. The tax rate for imported sugar is 7 % on cost, insurance and freight (CIF) value.
Know all Income Tax Due Dates – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (28/3/2017)
Every taxpayer must take note of the following tax due dates:
a. PAYE – by 9th day of the following month.
b. Income tax (normal with tax of more than kshs 40,000) for December cases:
- 1st instalment – by 20th April.
- 2nd instalment – by 20th June.
- 3rd instalment – by 20th September.
- 4th instalment – by 20th December.
- Balance of tax – by 30th April after the end of the financial year.
For those taxpayers whose year-end is not December, the instalments are as follows:
- 1st instalment – by 20th of 4th month.
- 2nd instalment – by 20th of 6th month.
- 3rd instalment – by 20th of 9th month.
- 4th instalment – by 20th of 12th month.
- Balance of tax – by 30th of 4th month after the end of the financial year.
c. Turnover Tax – by 20th day of the month after the quarter.
d. Rental income tax (less than kshs 10 million) – by 20th day of the following month. If rental income is more than kshs 10 million, follow the instalment basis of payment.
e. Withholding rental income tax – by 20th day of the following month.
e. Capital gains tax – by 20th day of the following month.
Know all VAT Due Dates – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (28/3/2017)
a. Normal VAT – by 20th day of the following month.
b. Withholding VAT
- Normal VAT – by 20th day of the following month.
- The VAT on rental income – by 20th day of the following month.
c. The VAT on imported services – by 20th day of the following month.
Know all Excise Duty Due Dates – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (28/3/2017)
- On imports – at the port of entry.
- Domestic – by 20th day of the following month.
Know all Standards Levy Due Dates – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (28/3/2017)
This is a payment to Kenya Bureau of Standards (KEBS) – by 20th day of the following month.
Know Sugar Development Levy Due Dates – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (28/3/2017)
Paid by 20th day of the following month to KRA who is the collecting agency.
Learn to Use i-Tax Platform – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (26/3/2017)
All taxpayer must make an effort to learn how to use i-Tax platform. The taxpayers should stop relying on other people to make tax returns for them. The reason is that in case the tax returns are not made correctly and fines, penalties and interests are levied by KRA, it is the taxpayer who will pay not their agent.
Migrate to i-Tax Platform – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (26/3/2017)
In case an individual taxpayer was previously registered under the ITMS platform in KRA, they are required to migrate all their tax details to the i-Tax platform. Any tax credits must be migrated too. Otherwise, the taxpayer will lose the tax credits.
Get Personal Identification Documents – Dr. Wakaguyu Wa Kiburi & taxkenya.com Team (26/3/2017)
When a Kenyan attains 18 years of age, they are required to get the following identification documents:
- National Identification (ID) – the main identification document upon which all documents are based.
- Personal Identification Number (PIN) – for tax purposes,
- NSSF card – to start contributing savings for old age.
- NHIF card – to enrol for the national insurance fund.
These documents will be required in all transactions whether for business or employment purposes. The documents will be used for life unless the requirements are changed by the government later.
Feel free to send us questions or topics on tax and investments in Kenya that you would wish to be covered in this Website.
Disclaimer
This post is for general overview and guidance and does not in any way amount to professional advice. Consequently, www.taxkenya.com, it’s owner or associates do not take any responsibility for results of any action taken on the basis of the information in this post or for any errors or omissions. Kenyan taxpayers must always rely on the most current information from KRA. Tax industry in Kenya is very dynamic.
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