An income tax is a tax placed on earnings from several sources, such as a company’s income, dividends, rents income, pensions, and so on. You must pay income tax if your income reaches a certain level. Profits are sometimes not taxed, and you may be eligible for exemptions and reliefs. Income tax is imposed by the government; The Kenya Revenue Authority (KRA) is the governing body responsible for acquiring, analyzing, and accounting for revenue. You must pay and file your taxes if you are over the age of 18 and have a source of income.
Income tax can be progressive, proportional, and regressive
A progressive tax levies a higher proportion of taxation on higher-income taxpayers, based on the assumption that they can afford to pay more.
A proportionate tax applies the same tax rate to everyone, regardless of their income.
A regressive tax system applies the same rate to all products or goods purchased, regardless of the buyer’s income, and is regarded as disproportionately burdensome for low-income people.
Why is income tax collection important?
Tax and fee collection is important as it is a major development goal: financing investments in human resources, infrastructure, debts accrued by the government, and service supply for residents and companies, as well as setting the correct pricing incentives for long-term private-sector investment.
What am I required to pay income tax on?
Income tax does not apply to all sources of income. However, you’ll certainly have to pay tax on:
- Savings account interest
- Earnings from a profession
- Dividends from stocks
- Certain benefits, such as bonuses, company-provided vehicles, and group term life insurance, should be paid out.
- Profit from lettings
- Pensions and Annuities (Pension is not taxable if it is commuted or received as a lump sum payment)
Types of taxes
Some of the types of income taxes are:
- Pay as You Earn
Pay as You Earn (PAYE) is a tax that is imposed on all employees’ earnings. In Kenya, the PAYE tax is administered by the Kenya Revenue Authority (KRA), which collects mandatory payments from employers before paying salaries and wages to employees.
PAYE applies to bonuses, directors’ fees, commissions, weekly wages, and monthly and annual salaries.
What is the minimum salary for PAYE? – People with a monthly income of Kshs. 24,000 and more are subject to PAYE.
- Corporate Income Tax
This is a type of income tax that is charged on the annual revenue of corporate organizations such as limited corporations, trusts, and co-operatives. Companies headquartered outside of Kenya that operate or have a unit in Kenya are subject to Kenya’s corporate income tax (CIT) only on the trading profits attributable to a Kenyan permanent establishment.
- Withholding Tax (WHT)
The amount of income tax withheld from an employee’s paycheck and paid directly to the government in the employee’s name is known as withholding tax. This type of tax is deducted from specific types of income at the time of payment to non-employees. A withholding agent deducts this tax at the point of sale (a person is required to deduct tax). Unless the individual is exempt from paying the tax, a registered partnership, corporation, trust, or other business that makes payment to another person for goods or services purchased qualifies to withhold the tax.
- Installment Tax
What Is Installment Tax and How Does It Work?
Income tax Installment is a type of income tax that is paid to KRA regularly in advance of the tax due for the year. Installment tax is paid by anyone who owes more than Kshs. 40,000 in taxes for any given year.
For all taxpayers except those in the agricultural sector, the payments are evenly distributed at 25% of the tax owed and payable on the 20th day of the 4th, 6th, 9th, and 12th months of the year of income. Agricultural taxpayers pay in installments of 75 percent in the ninth month and 25 percent in the twelfth month.
- Advance tax
The amount of income tax paid in advance rather than in a lump-sum payment at the end of the year is referred to as an advance tax. Advance tax, sometimes known as earn tax, is paid in installments according to the income tax department’s deadlines.
- Residential income tax
Income tax on residential property is a tax imposed on rental revenue derived from the rental of properties. In Kenya, a person is considered a tax resident if they:
Have a permanent address in Kenya and be present there at any time throughout the earning year, or
Even though they do not live in Kenya regularly but have been in Kenya for at least 183 days during the earning year.
- Value Added Tax (VAT)
VAT is a consumption tax applied on products and services at each stage of the supply chain where revenue is generated, from initial manufacturing through the point of sale.
Other methods in which income taxes are collected are: excise duty, agency revenue, capital gains tax (CGT),…
Income tax refund.
It’s reimbursement of overdue taxes paid within a certain time frame. A refund claim must be made within five years of the tax payment date. The taxpayer will get a decision on the application within 90 days of receiving it.
Why is the income tax refund late? – If you committed math errors or your return was incomplete or wrong, the refund may be delayed. If the KRA needs further information to complete your return, they may give you instructions by mail.
Is income tax refund taxable? -The amount of your income tax refund corresponds to the extra tax that you paid and is consequently not considered income. As a result, it is not taxed. The interest earned on the income tax refund, on the other hand, is deemed income and is taxed at the relevant tax rate.
What is the penalty for filing taxes late?
The late filing penalty is Kshs 2000 or 5% of the outstanding tax, whichever is greater.
Late payment penalty: 1% per month interest on the tax owed, plus 5% of payable tax until paid in full.
KRA iTAX
Payment of tax can be done online. The iTax website collects taxes on three categories of income: employment income, company revenue, and rental income.
Also, Kenya Revenue Authority (KRA) presents the I Tax Mobile App, a software application developed to operate on the Android platform to facilitate access to tax services by capitalizing on Kenya’s rapidly increasing mobile sector. In its initial phase, the mobile app will allow you to facilitate any of the following tax transactions:
- Submission of NIL returns for all tax responsibilities, including VAT, Pay as You Earn (PAYE), Monthly Rental Income (MRI) report, Income Tax Partnership (IT2P), Income Tax Company (IT2C), Income Tax Individual (IT1), Turnover Tax, and Excise return.
- Registration of payments for the Monthly Rental Income (MRI) return. The generated payment registration number (PRN) can be used to make tax payments at any of Kenya’s agent commercial banks or through mobile service providers.
Most individuals are intimidated by the word tax, especially since statements like “penalties” are commonly linked with it, pay your taxes today to avoid any problem. We at meclon consultancy give you the best strategy and consultation needed for tax filing and payment.
