TAX IN KENYA

TOPICS INTRODUCTION GOVERNING ACTS TYPES OF TAXES IN KENYA

INTRODUCTION In Kenya, the Kenya Revenue Authority (KRA) is charged with collection of all taxes. The Kenya Revenue Authority (KRA) was established by an Act of Parliament, Chapter 469 of the laws of Kenya , which became effective on 1st July 1995 . The Authority is charged with the responsibility of collecting revenue on behalf of the Government of Kenya. A Board of Directors, consisting of both public and private sector experts, makes policy decisions to be implemented by KRA Management. The Chairman of the Board is appointed by the President of the Republic of Kenya . The Chief Executive of the Authority is the Commissioner General who is appointed by the Minister for Finance.

INTRODUCTION (Cont’d) PURPOSE OF KRA Assessment , Collection, Administration and Enforcement of laws relating to revenue.

GOVERNING ACTS INCOME TAX ACT CAP 470 VALUE ADDED TAX (VAT) ACT CAP 476

INCOME TAX Introduction The Kenya Income Tax Act commenced on 1st January 1974 after the dissolution of the East African Community Management Act. Upon formation of the Kenya Revenue Authority on 1st July 1995, Income Tax was absorbed as a department of the Authority. The Commissioner of Income Tax who is appointed by the Minister for Finance heads the department.

INCOME TAX (Cont’d) The Income Tax Law contained in the Income Tax Act, chapter 470 of the laws of Kenya, which has the principal legislation with schedules and subsidiary legislations.

INCOME TAX (Cont’d) Scope of Tax Income tax is a direct tax that is imposed on income derived from Business, Employment, Rent, Dividends, Interests, and Pensions among others.

INCOME TAX (Cont’d) Principal law and Schedules of the Income Tax Act Income tax act has 14 parts and 133 sections; and 13 schedules. It also contains subsidiary legislation on rules, which govern the operations of the Local Committee, Tribunal, High Court, PAYE e.t.c

TYPES OF TAXES Direct taxes Indirect taxes

DIRECT TAXES   Income Tax Department administers various direct taxes, which have different rates: Pay As You Earn (PAYE) Corporation Tax Withholding Tax Advance Tax Turnover Tax Pay As You Earn (PAYE) PAYE is a method of collecting tax at source from individuals in gainful employment. The employer deducts a certain amount of tax from his / her employee's salary or wages on each payday then remit the tax to the Authority. This relieves the employee from paying taxes at the end of the year and shifts the responsibility to the employers. Every individual who receives income is granted a tax credit or a tax relief from the Authority, this is known as Personal Relief. Insurance relief and mortgage relief are also available for eligible persons. The total tax credit is spread evenly during the charge year. At the end of the year, an individual will submit his self-assessment on total income received from various sources. Should the tax credit be lower than actual tax charged during the year, the balance of tax due will be payable. Corporation Tax Corporation tax is a form of income tax that is levied on companies. Resident companies are taxable at a rate of 30% w.e.f year of income 2000 while non - resident companies are taxable at a rate of 37.5%.w.e.f year of income 2000 Withholding Tax : This taxes are deducted at source from the following sources of income: Interest, dividends, royalties, management or professional fees, commissions, pension or retirement annuity, rent, appearance or performance fees for entertaining, sporting or diverting an audience. There are different rates for residents and non – residents. d) Advance Tax: applicable to Matatus and other Public Service Vehicles. It is not a final tax, but a tax partly paid in advance before a public service vehicle or a commercial vehicle is registered or licensed. E) Turnover Tax: The law became effective from January 1,2008. Turnover tax is payable by any resident person whose income from business is accrued in or derived from Kenya and does not exceed five million shillings during any year of income. Turnover tax not applicable where income from business does not exceed Kshs 500,000 in a year

INDIRECT TAXES - VAT VAT is a general consumption tax assessed on the value added to goods and services. It is consumption tax because it is bourne ultimately by the final consumer

INDIRECT TAXES - VAT Rates: Zero rated Goods and services that are vatable at 0% rate

INDIRECT TAXES - VAT Exempt goods and services are not subject to any VAT(3rd Schedule VAT Act) Examples Financial services (Banks & financial institutions) Insurance and reinsurance services Renting, leasing and hiring of land and buildings (excluding car park and conference facilities) Entertainment performed by resident artist (w.e.f. 16.6.06)

INDIRECT TAXES - VAT Taxable goods and services vatable at the standard rate of 16% Examples: Local sales of most goods Services Disposal of scrap, non-passenger motor vehicles( e.g. Lorries, pick up0 Insurance proceeds received in respect of taxable goods

INDIRECT TAXES Customs and Excise The Customs Services Department (previously known as Customs and Excise Department) of the Kenya Revenue Authority was established by an Act of Parliament in 1978. It is the largest of the four revenue departments in terms of manpower, revenue collection and countrywide operational network. The primary function of the Department is to collect and account for import duty and VAT on imports.

INDIRECT TAXES Customs and Excise (Cont’d) Other taxes collected by the Department on an agency basis include: Petroleum Development Levy Sugar Levy Road Maintenance Levy Import Declaration Fee (IDF) Road Transit Toll Directorate of Civil Aviation Fees Air Passenger Service Charge KAA Concession Fees Fees on Motor Vehicle permits

INDIRECT TAXES Customs and Excise (Cont’d) Apart from its fiscal responsibilities, the Customs Services Department is responsible for facilitation of legitimate trade; and protection of society from illegal entry and exit of prohibited goods. The Department is headed by the Commissioner of Customs Services Department deputized by the Senior Deputy Commissioner. 

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