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Income Tax Act

This Is An Act Of Parliament Enacted To Govern All Matters Relating To Taxation In Kenya, Including;

  • charge, Assessment And Collection Of Income Tax
  • ascertainment Of The Income To Be Charged
  • the Administrative And General Provisions Relating To Taxation Of Income Tax

All persons whether resident or non-resident who gained income from Kenya or whose income comes from Kenya are supposed to pay income tax (Section 3)

With regards to businesses carried on partly in Kenya and outside Kenya by a person resident in Kenya, all gains from them are deemed to have arisen in Kenya.  

A person is resident in Kenya if he has a permanent home in Kenya and was present for at any time in the year or if he has no permanent home in Kenya, was present for at least 183 days in the year or 122 days in the last two years.

A company is considered resident in Kenya if it is incorporated in Kenya, if it is managed and controlled in Kenya or if it has been declared to be a resident by the Minister in a notice in the Kenya Gazette    

  • Business income
  • Employment income including benefits
  • Dividend or interest in investments
  • Pension
  • Withdrawal or payment from a pension fund
  • Value from sale of property or shares (oil companies, mining companies, mineral prospecting companies)
  • Pay As You Earn (PAYE)
    • This is tax collected from employed people. The employers deduct the tax before giving the employee salary on each month. The employer pays this tax directly to KRA. Every employee who get PAYE deducted is entitled to a “Personal Relief.”
  • Corporation Tax
    • This is tax paid by limited companies, trusts, cooperatives and such other corporate bodies. Currently, Kenyan companies are taxed 30%  while Foreign companies are taxed 37.5%.
  • Withholding Tax
    • This is tax deducted at the source from interest, dividends, royalties, management/ professional fees (such as consultancy, agency or contractual fees), commissions, pensions, rent received by non-resident person, and other payments as may be specified. The rate varies depending on whether the person receiving the income in resident or non- resident. The person paying the income is responsible for deducting the withholding tax and paying it to KRA.
  • A unit trust registered by the Commissioner is exempt from income tax – Section 20 (Subject to conditions specified by the Minister under Section 130)
  • Securities over property and transfers of property in favour of or by the Commissioner are exempt from stamp duty. Section 131
  • Income tax is to be charged annually - Section 3.
  • Taxation of business carried on by an Export Processing Zone enterprise is guided by the provisions of the Eleventh Schedule – Section 4B
  • A company resident in Kenya shall establish and maintain a Dividend Tax Account - Section 7A
  • Income of  non-resident ship-owner, charterer or air transport operat or and a ship or aircraft owned or chartered by him that  calls at any port or airport in Kenya, the gains or profits from that business from the carriage of passengers who embark, or cargo or mail which is embarked non-resident is deemed derived from Kenya – Section 9
  • Instalment tax to be paid as from 1st January, 1990 by every person chargeable to tax (subject to conditions in the Act)-Section 12
  • Advance tax to be paid in respect of every commercial vehicle as from 1st January, at the rates specified in the Third Schedule – Section 12A
  • Fringe benefit tax to be paid as from 12th June, 1998 by every employer in respect of a loan provided at an interest rate lower than the market interest rate to an individual being a director or an employee or is a relative of a director or an employee, by virtue of his position as director or his employment or the employment of the person to whom he is related-Section 12B
  • Disallowable deductions – deductions not allowed listed in Section 16 of the Act.
  • Stock owned by a farmer considered in computing the gains or profits from the farming business – Section 17
  • The capital element of all annuities paid is not deemed as income – Section 22.
  • Deduction of contributions of an employee in a year is the lesser of sum of contributions made by employee in that year, 30% of employee’s pensionable income or Kshs. 210, 000 – Section 22A.
  • Individuals not being members of a registered fund or a public pension scheme may contribute to a registered individual retirement fund- Section 22 B.
  • As from   1st January, 1996 a depositor can deposit funds with a registered home ownership savings plan-Section 22C
  • Accounting periods not coinciding with year of income- the the income of an accounting period ending on another date other than 31st December is taken to be the income for that year Section 27.
  • Sums received after cessation of business considered income for that year. Section 28
  • Rates of tax applicable in different circumstances – Section 34.
  • An amount of import duty which has been paid under Section 117 of the Customs and Excise Act shall be set off for the purposes of collection against the tax charged on the income of the person who incurred the investment expenditure – Section 39A
  • Income of a person chargeable to tax to be assessed and charged on that person- Section 44.
  • Income of a married woman living with her husband deemed to be the income of the husband for the purpose of ascertaining his total income, and shall is assessed on, and the tax thereon charged on, the husband – Section 45
  • Income of an incapacitated person to be charged on, that person in the name of his trustee, guardian, curator, committee or receiver appointed by a court – Section 46.
  • Income of a non-resident person to be assessed tax thereon charged on, that person either in his name or in the name of his trustee, guardian, curator or committee, or of any attorney, factor, agent, receiver or manager. Section 47
  • Income received prior to the date of death of a deceased person to be assessed and the tax charged on, his executors or administrators. Section 48
  • In the case of trustees, each trustee is jointly and severally liable for the payment of tax charged in the assessment. Section 49
  • When making a return of income for a business prepared by another person, include a copy of accounts duly signed and a certificate specifying the nature and amounts of all payments of whatever kind made. Section 54
  • A person doing business to keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds, contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax. Section 54A
  • Assessment may be made under this Act at any time before the expiry of seven years after the year income to which the assessment relates. Section 79 (subject to conditions set out in this Section)
  • Assessments are not to be declared as void or quashed by reason of mistake, omission or for want of form if the substance conforms to the intention and the Act. Section 81
  • Assessment final and conclusive for the purposes of this Act where no notice of objection is given or amendment is made pursuant to a notice or assessment has been made on appeal. Section 88.
  • Tax charged in any assessment shall be due and payable in accordance with the provisions in Section 92 of the Act.
  • Commissioner may elect to refrain from assessing or recovering tax and thereupon liability to the tax shall be deemed to be extinguished where there is uncertainty in any question of law or fact, in consideration of hardship and undue difficulty or expense. Section 123
  • The powers and duties of the Commissioner under this Act, other than powers under Section 114, may be exercised by a Deputy Commissioner, Senior Assistant Commissioner, or Assistant Commissioner. (except where he expressly directs otherwise) Section 124
  • All persons with income chargeable to tax must have a personal identification number (PIN). Section 132
  • The Income Tax Act cannot be repealed by any act the Community enacted thereafter. Section 133
  • Income accrued in, derived from or received in Kenya which is exempt from tax listed in 1st schedule to the act – part i
  • Securities, the interest on which is exempt from tax listed in 1st schedule to the act – part ii
  • Deductions in respect of capital expenditure on certain buildings listed in 2nd schedule –part i
  • Deductions in respect of capital expenditure on machinery listed in 2nd schedule –part ii
  • Deductions in respect of mining operations listed in 2nd schedule –part iii
  • Deduction in respect of capital expenditure on agricultural land listed in 2nd schedule –part iv
  • Investment deductions listed in 2nd schedule – part v
  • All applicable rates (both personal and rates of tax) listed in 3rd schedule to the Act.
  • Taxation of petroleum companies and petroleum service subcontractors to be done according to part ii and iii of the 9th schedule to the Act.
  • Taxation of export processing zone enterprises to be done according to the 11th schedule to the Act.
  • A pension received by a resident individual from a pension fund or pension scheme established outside Kenya shall be deemed to have accrued in or to have been derived from Kenya. Section 8
  • To ascertain the total income of a person for a year, allowable deductions should be made subject to provisions in Section 16 and 27. Section 15
  • Presumptive income tax to be deducted from the proceeds of the agricultural produce, other than imported produce, specified in the first column of the Tenth Schedule. Section 17A (N/B-The Finance Bill 2016 however removes this Section in Section 12)
  • Ascertainment of gains or profits of business in relation to non-resident persons manufacturing, growing, mining, or producing, or harvesting, whether from the land or from the water, a product or produce, gains or profits from that business carried on in Kenya shall be deemed to be income derived from Kenya. Section 18
  • An individual who has filed a return on income is entitled to a personal relief which shall be set off against tax payable by him for that year of income at the rate and subject to the limitation specified in Head A of the Third Schedule. Section 29
  • Resident individuals in receipt of taxable income are entitled to a tax relief in this Act referred to as the personal relief. Section 30
  • Deduction of tax to be done when payment is done in respect of services listed in Section 35 of the Act. This shall be done at the appropriate non-resident rate. Section 35
  • When paying an annuity, Trustees of a will or settlement to deduct therefrom tax at the rate paid or payable on the income out of which the annuity is payable. Section 36
  • Employer paying emoluments to employee to deduct taxes. Section 37
  • Commissioner has a right to require a person to furnish him within a reasonable time, (at least 30 days from the date of notice), with a return of income for any year of income containing a full and true statement of the income of that person. Section 52
  • All individuals chargeable to tax under this Act as from 1992 to furnish to the Commissioner a return of income, including a self-assessment of his tax from all sources of income, not later than the last day of the sixth month following the end of his year of income. Section 52B
  • Commissioner may require a person to keep the records, books, and accounts, and to keep them in a specified language, where he is of the opinion that such person has failed to keep books or accounts which, in the opinion of the Commissioner are adequate for the purpose of computing tax. Section 55
  • Commissioner may require a person to produce or preserve such books of account for examination. Section 56
  • Commissioner may, by notice in writing, require an employer to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return containing names and addresses of all persons in respect of which payments were made. Section 57
  • Commissioner may, by notice in writing, require a person who is the occupier of premises to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return containing name and address of owner or lessor and statement of rent or other consideration for such occupation. Section 59
  • Commissioner require a person who provides accommodation for a lodger or inmate to furnish him within a reasonable time with a return containing the name of every lodger or inmate who is at the date of the notice resident in his house, hotel or institution. Section 60
  • Commissioner may require a person who is in receipt of income as the representative of, or on behalf of, another person who is chargeable to tax in respect thereof, to furnish him with a return within reasonable time stating a full and true statement of income and the name and address of the person it belongs to. Section 61
  • Commissioner may require such other information and documents as outlined in Sections 62-70 of the Act. All to be required in writing and to be furnished within reasonable time, not being less than 30 days. Section 62 – 70 of the Act.
  • There is an obligation on the Commissioner to assess every person who has income chargeable to tax as expeditiously as possible after the expiry of the time allowed to that person under this Act for the delivery of a return of income. Section 73
  • Commissioner may, according to the best of his judgement, determine the amount of the income of a person about to leave Kenya, or who has left Kenya for that year of income and assess him accordingly. Section 75
  • An employee has the right not to be assessed for tax where he had no income chargeable to tax in that year and the personal relief he is entitled to have been recovered by deduction under Section 37. Section 76
  • Commissioner has a right to do additional assessments where he is of the opinion that earlier assessment was done on a lesser amount than the true amount of income. Section 77
  • Commissioner has an obligation to serve a notice of assessment on the person assessed stating the amount assessed, tax payable and rights available under Section 84 of the Act. Section 78
  • Commissioner to cause to be prepared a list of persons assessed to tax in a year of income. List to contain name and address of the person, amount assessed and tax payable. Section 80
  • On assessment of persons leaving or having left the country, the Commissioner may by notice require that payment of the whole of the tax assessed or such part thereof as remains unpaid be made within time specified in the notice. Section 98
  • In case of security given in Section 98 in the form of a guarantee, Commissioner may require the guarantor to make such payment within 90 days. Section 100
  • The Commissioner has a right to collect taxes by way of suit. Section 101
  • Instead of suing the Commissioner may also recover the amount by executing distress upon the goods and chattels of the person from whom the tax is recoverable. Section 102
  • Where the person who defaults in payment of tax owns land or buildings on land, the Commissioner may by notice in writing notify that person of his intention to apply to the Registrar of Lands for the land or buildings to be the subject of security for tax of an amount specified in the notice. Section 103
  • Collection of tax from ship-owner – the Commissioner may issue to the proper officer of Customs by whom clearance may be granted a certificate containing the name of that person and the amount of the tax due and payable and on receipt of that certificate the proper officer of Customs shall refuse clearance from any port or airport in Kenya to any ship or aircraft owned by that person until the tax has been paid. Section 104
  • Where tax is paid by a person in excess, such a person has a right to be refunded the excess amount with interest thereon. Section 105
  • Tax charged is payable notwithstanding that a person has been prosecuted for non-payment. Section 118
  • Assessors or persons authorized by the Commissioner may be granted by a magistrate the power to search premises and seize materials necessary for civil or criminal proceedings. Section 119
  • Confidentiality of tax payer’s information - An officer and any other person employed in carrying out the provisions of this Act have an obligation to regard and deal with all documents and information relating to the income of a person and all confidential instructions in respect of the administration of the Income Tax Department as secret. Section 125
  • Where an obligation is imposed by this Act on a corporate body, the general manager or other principal officer of that body shall be responsible for performing that obligation. Section 129
  • The Minister may make rules prescribing anything, which is to be prescribed under, and generally for carrying out the provisions of, this Act. Section 130
  • A person who disputes an assessment made upon him under the Act may, by notice in writing to the Commissioner, object to the assessment. Section 84 or apply to the Commissioner for relief where assessment was excessive by reason of error or mistake. Section 90
  • Right of Appeal from the Commissioner’s determination of objection lies (within 30 days of the decision of the Commissioner)  to the Tax Appeals Tribunal, or the Local Committee. An appeal from the decision of the Tribunal or the Local Committee should be taken to the High Court on an issue of the Law or a mixture of Law and Fact within 15 days of the decision. Section 86
  • Decision of the court from an appeal lodged under Section 86(2) may be appealed against in the Court of Appeal by giving notice to the other party within 15 days from the date of the decision on issues of law, rules or procedure as provided in the Act. Section 91A
  • Collection of tax by suit – where payment of tax has not been made on or before the due date and notice to pay served on a person has not been heeded, such person may be sued for and recovered as a debt due to the Government in a court of competent jurisdiction by the Commissioner in his official name. Section 101
  • An appeal may be allowed after the 30 days or 15days where the tax payer seeks an extension of time. To qualify for the extension of time, the tax payer must pay the amount due and in addition give good reason for not having objected within the 30 or 15 days of the decision. A good reason would be for instance that he was unwell or out of the country and unable to file the objection in time. Section 86
  • The tax payer may appear at the hearing of an appeal in person or with his advocate and may be represented by an agent appointed in writing. Section 87.

The Kenya Revenue Authority is the State Collector of Taxes. For further information and assistance please visit their website www.kra.go.ke or contact any of their offices country wide from here.

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