June 30th is fast approaching. Only a couple of days remain before the deadline for filing KRA tax returns for 2023. Even in the cacophony of last-minute accounting for one’s taxable income, it is incredibly important to be aware of the evolution of the tax regime and how that affects their income statement.
Every working individual in Kenya, resident or non-resident, must file their tax returns through KRA’s online portal, iTax. Employed individuals are expected to declare their returns through a P9 form. Non-income individuals are expected to file nil returns. Self-employed individuals or employed individuals with an alternative source of income are expected to file returns through the self-assessment tax.
The filing of returns is meant to account for an individual’s income and it allows the government to keep track of income flows and financial transactions. KRA (Kenya Revenue Authority) is the government entity that is tasked with carrying out the mandate of managing the country’s tax regime. The Finance Act 2023 has played a huge part in influencing the current tax regime and will affect the payment and filing of tax returns for 2023.
Failure to file returns attracts a penalty of 5% on an individual’s regular tax return rate or Kshs 10,000 for non-resident individuals.
Table of Contents
Changes to KRA Tax Returns Rates
Turnover Tax Return Rates (TOT)
Businesses that generate an annual gross turnover over Kshs 1 million but less than Kshs 25 million will be charged a turnover tax rate of 3%. This represents an increment from the 1% rate which was introduced during the pandemic period to help businesses grapple with the effects of COVID.
Businesses earning over Kshs 25 million will be expected to pay a corporation tax of 30%.
Revised Individual Tax Rates
New tax rates charged on individual income shall be as follows;
| First Kshs 288,000 | 10% |
| Next Kshs 100,000 | 25% |
| Next Kshs 5,612,000 | 30% |
| Next Kshs 3,600,000 | 32.5% |
| Above Kshs 9,600,000 | 35% |
These individual income rates shall also apply to sole proprietors earning a similar income rate. This is perhaps a move to encourage them to convert their income streams to Limited Companies.
Withholding Tax for content creators
Targets the Kenyan youth working and earning a living in the country’s budding content creation industry. Content creators will be charged a withholding tax at a 5% rate of their gross income. The Finance Bill 2023 had initially suggested a 15% withholding tax rate, a proposition that was challenged by the content creation industry.
Monthly Rental Income Rate
Income generated from rental properties is to be charged a reduced rate of 7.5%, down from an initial rate of 10%.
Affordable Housing Levy
The Affordable Housing Levy shall be charged at a 1.5% rate of the employee’s gross salary, to be paid by both the employee and employer. The Finance Bill 2023 initially had the payment rate capped at Kshs 5,000 monthly, a provision that the subsequent Act later scrapped. The Finance Act 2023 also did away with any provisions mandating the potential of reclaiming the benefits afforded by the levy.
Other Mandates arising from the Finance Act, 2023.
- The taxation of income from a registered trust for the beneficiaries it is afforded to: The Income Tax Act (ITA) initially provided a tax relief to beneficiaries of registered trusts for specific payments such as; early adulthood housing, education and medical payments, and income paid out below Kshs 10 million. By deleting these provisions in the ITA, the Finance Act makes this income stream susceptible to taxation.
- Revision of Withholding tax remittance due date: Withholding tax is now to be remitted within 5 working days of applicable tax deduction. This is a move designed to create efficiency in filing of taxes in a timely fashion.
Furthermore, KRA aims to improve tax administration through the introduction of tax invoices and tax records under the electronic tax invoice management system (eTIMS) filing system for business entities.
- Digital Service Tax: Suppliers providing imported digital services over the internet, electronic networks, or through the digital marketplace are expected to sign up for a Digital Service Tax. The Finance Act introduced this provision through an amendment to the VAT Act, of 2013. Individuals working in the digital income are therefore required to pay VAT on their taxable supplies, regardless of whether they meet the annual turnover threshold of Kshs 5 Million.
- Removal of the annual adjustment rate of inflation in the computation of payable taxes: This provision was introduced under the Excise Duty Act, 2015 and has proved to be effective in capturing the true nature of the country’s fiscal environment and reflecting it in the tax regime; a welcome change for tax-paying individuals.
- Filing income for spouses: Individuals are now delinked from filing income taxes for their spouses under the Tax Reforms Processing Modules. Consequently, this makes it easier for one to file individual returns.
Make sure to file your tax returns in time to avoid attracting fines and penalties. You can do so here.
Read more on the implications of the Finance Act 2024 here.
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