All you need to know about the Kenya Tax Administration
Taxation of businesses in Kenya is a very critical topic to navigating compliance as Kenya is a country with tough regulations and taxation policies that have over the years, hindered the fiscal success of numerous small businesses years after they launch.
This is why it is pivotal to have a good understanding of government requirements and legal expectations if you wish to successfully establish a business in Kenya and make the desired profit.
Note that the kind of business you are looking to start and the direction of that business will dictate the kind of taxes you will be required to pay and how they will affect your business directly.
According to an interview in the public space as curated by Africataxreview.com, Sammy Aloyo, a tax consultant, if one is running an individual business that involves only that individual, the tax responsibility regarding the business is on him and him alone.
On the other hand, if he has other people involved in the business and they secured a loan to run the business, they will be responsible for tax payments as a company, not as individuals.
Aloyo mentioned that there are two (2) types of taxes that a business owner must be familiar with;
1. Direct tax: Under direct tax comes deductions such as excise duty, customs duty and levies, and Value Added Tax (VAT).
2. Statutory or Indirect tax: This is the tax imposed by law on taxable income that falls within a given tax bracket. They include PAYE, Corporate tax, custom and excise duty, and withholding tax.
Taxation of Businesses In Kenya: PAYE
PAYE is a statutory tax collected from individuals engaged in gainful employment. How this works is that the employers make a deduction of a particular percentage from the workers’ salary which is then remitted to the government.
Taxation of Businesses In Kenya: Custom Duties
These include import duties such as excise duty, VAT, import declaration fee, and railway development levy. This is charged to the importer of the goods at the point of the importation.
The importers are required to accurately calculate and pay the taxes based on the applicable charges.
Generally, when goods are imported, VAT, import duty, excise duty, import declaration fee, railway development fee, raw material, intermediate goods, and finished goods are applied.
Taxation of Businesses In Kenya: Withholding Tax
This type of statutory tax is charged on interests, dividends, pensions, performance fees, royalties, commissions, and so on. However, the rates of the taxes collected are not fixed. Instead, they vary according to the residential status of the taxpayer.
Taxation of Businesses In Kenya: Corporate Tax
Under this tax, companies operating in the country pay a charge on their total income to the government. The indigenous companies are charged 30% while branches of non-resident companies are charged 37.5% on their taxable profits.
In 2020, the government introduced Turnover Tax (TOT) for small businesses wishing to operate in the country. TOT is a tax charged on the gross sales of a business as per Sec. 12(c) of the Income Tax Act.
TOT is payable by resident persons whose gross turnover from business is more than Ksh1,000,000 and does not exceed or is not expected to exceed Ksh50,000,000 in any given year.
