• A site by BDO Kenya
  • Personal Income tax

Overview

There is no difference between taxation of Kenyan citizens and expatriates

           Who and what is taxable?

Any amount payable to:

  • Any person who is, or was at the time of employment or when the services were rendered a resident person.
  • A non-resident person in respect of any employment with or services rendered to any employer who is resident in Kenya.

 

Taxable employment income includes:

  • all cash payments however described;

the value of non-cash benefits (exceeding Ksh 3,000 per month);

Cash Emoluments

Cash pay includes; wages, salary, sick pay, leave pay, fees, commissions, bonuses, service gratuity, allowances, director’s fees, overtime, pension, entertainment and any other payments received in respect of employment. Wages from casual employments are excluded and are defined as ‘any engagement with any one employer which is made for a period of less than one month, the emoluments of which are calculated by reference to the period of engagement or shorter intervals. Regular part time employees and regular casual employment where employees are employed casually but regularly are not considered casual employees’.

Amounts that are mere reimbursement of expenses e.g. subsistence allowance on official duty (per diems) or mileage allowance are not considered taxable pay. Per diems of up to Ksh 2,000 per day are tax free, but round sum expenses are treated as taxable earnings.

Non cash benefits and taxation provisions

Non-cash benefits include housing, cars, utilities, school fees, domestic servants, club subscriptions, telephone expenses, provision of furniture, shares options and other benefits paid for by an employer on behalf of employees.  Also included are life insurance premiums and interest free/low interest loans.

Non-cash benefits are required to be taxed at their cost value or at the fair market values whichever is higher. The Commissioner may, from time to time, prescribe the value of the benefit where the cost or the fair market value of a benefit cannot be determined. The prescribed rates currently in force are:

  1. Furniture – 1% of the cost per month. Full cost if hired.
  2. Water   - Ksh 500 per month.
  3. Electricity –Ksh 1,500 per month
  4. Telephone (mobile and landlines)- 30% of bills.
  5. ESOP’s – market value less offer price

 

A motor-vehicle benefit is valued at the higher of Commissioner’s prescribed values and 2% per month of the capital cost. Where a vehicle is leased, the benefit value is the higher of the prescribed rates and lease hire costs. Restricted use may be allowed by the Commissioner upon application.

Housing benefit valuation for tax purposes is calculated as follows:

  1. for an owner director of a company the higher of: 15% of total income, market rental value or rent paid by employer
  2. for whole time service director the higher of: 15% of employment income, market rental value, or rent paid by employer.
  3. for employees – the greater of 15% of employment income and actual rent paid at arms length. Where premises are owned by the employer the rental market value is taken,
  4. For agricultural employees: 10% of employment income (required to reside at the farm).
  5. Where premises are occupied for part of the year the benefit is apportioned accordingly.
  6.  Any rent paid by the employee to the employer is deducted from the total housing benefit.

Personal and other relief

Personal reliefs represents the amount which can be deducted by an eligible person from the tax payable by him/her.

  1. A uniform personal relief - Effective January 2017 Ksh 15,360 per annum claimable by all employees.  Effective January 2018 the personal relief is sh 16,896 per annum
  1. Life, health and education insurance relief – 15% of premium subject to a maximum of Ksh 60,000 p.a.
  2. Mortgage interest relief on owner occupied property - maximum of Ksh 300,000 per annum, with effect from January 2017.
  3. Home ownership savings plan – a maximum of shs 48,000 p.a. for a maximum period of 10 years.

Tax free employment benefits

There are some components of remuneration packages that are specifically not taxable on employees.  These are:

  1. home travel expenses  provided by an employer to expatriates;
  2. Amounts paid by employer as contributions to pensions and provident funds schemes, but excludes employees serving tax exempt employers.
  3. educational fees paid for employee’s dependants and relatives provided that such amounts are disallowed on the employer’s tax computations and tax is paid thereon;
  4. medical services and medical insurance for full time employees (subject to a Khs 1. million limit for directors holding more than 5% of  company’s shares);
  5. benefits whose accumulative value does not exceed Shs 3,000 per month.
  6. Employer canteen meals not exceeding Ksh 4,000 per month (Ksh 48,000 per annum)
  7. Fringe benefit tax.
  8. Monthly pension withdrawals not exceeding Ksh 15,000
  9. Full pensions paid to senior citizens (over 65 years)
  10. First Ksh 150,000 per month for the disabled.
  11. Effective July 2016, Bonuses, overtime and retirement benefits paid to employees whose income does not exceed the lowest tax band (currently Kshs 11,180 previously Kshs 10,164) are tax free.
  12.  

Tax rates (monthly)

With effect from January 2017 the monthly PAYE rates are as below:

 

On the first shs, 11,180 .…......     10%

On the next shs, 10,534 .........     15%

On the next shs, 10,534 .........     20%

On the next shs,10,534 ..........     25%

On income over shs 42,781 ....... 30%

 

With effect from January 2018 the monthly PAYE rates are as below:

 

On the first shs, 12,298 .…......     10%

On the next shs, 11,588 .........     15%

On the next shs, 11,588 .........     20%

On the next shs, 11,588..........     25%

On income over shs 47,062 ....... 30%

 

Tax rates (monthly)

Income  bracket (Ksh)

Tax rate

Tax (Ksh)

Cumulative tax (Ksh)

1 – 10,164

10%

1,016

1,016

Next 9,576

15%

1,436

2,452

Next 9,576

20%

1,915

4,368

Next 9,576

25%

2,394

6,762

Over 38,892

30%

 

 

Employee loans

An employee who receives a loan from his/her employer at a rate lower than the published          market rate will be deemed to have a derived a benefit. A fringe benefit tax will be computed at the corporate tax rate of 30% to be borne by employer.

Pension and Provident Funds

  1. Pension contributions by an employee to a registered pension fund is an allowable deduction   against taxable employment income but up to a maximum of Ksh 20,000 per month.
  2. Insurance premiums paid by an employer to a registered or unregistered pension fund or to individual retirement fund, or for group life cover shall not be taxable on the employee unless such cover confers a benefit to the employee or his dependants.
  3. An individual who is not a member of a registered fund and who contributes to an individual retirement fund is entailed to claim the contributions subject to the limits prescribed above.
  4. Contributions made by employers to registered or un-registered funds are not chargeable to tax on the employee. However, employees of tax exempt bodies will be taxed but only on amounts exceeding Ksh 20,000 per month.