Technical Circular on taxation of employment income (PAYE)

Technical Circular on taxation of employment income (PAYE)

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Breaking- Revision of Individual Income Tax Rates (Effective 1st January 2017)

Kenya Revenue Authority wishes to notify Employers, Employees and the Public, that the Government, through the Finance Act 2016 has revised the Residents individual rates of tax and increased the personal relief from ksh 13,944 Per Annum to ksh 15,360 Per Annum with effect from 1st January 2017.


For more details download PUBLIC NOTICE - REVISION OF INDIVIDUAL INCOME TAX RATES.pdf

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Employee Guide to Pay As You Earn (PAYE).

Q1.   What is PAYE?

A1.  It is a system of taxing employment income.

Q2.  What are the employees' income tax rates?

A2.  The annual rates are as follows:
          First KShs. 121,968 @ 10%
          Next KShs.114, 912 @ 15%
          Next KShs.114, 912 @ 20%
          Next KShs.114, 9120 @ 25%
          Above KShs. 466,704 @ 30%.
These rates also apply to individual and wife's employment, wife's self-employment income and wife's professional income. Personal relief w.e.f 1-1-2005 is Kshs. 13,944 p.a or KShs 1,162 p.m

Q3.  Are there any allowances, which are not subject to PAYE?

A3.  In principle, all allowances paid to employees are subject to tax except the valued medical services provided by an employer Expenses reimbursed by an employer are also exempt where they were incurred to earn employment income.

Q4.   How can I compute PAYE?

A4.  Compute tax on Basic salary + Benefits using the prevailing rates and give appropriate personal reliefs.

Q5. Are employees entitled to relief?

A5  Yes. Current personal relief is Kshs.1, 162 per month or Kssh.13, 944 p.a. Insurance relief on education policy for children, life of self or spouse, allow 15% of premiums paid subject to a maximum of Ksh.3, 000 per month or kshs.36, 000 p.a

Q6.   Is an employee obliged to file a tax return?

A6  Yes it is a statutory requirement w.e.f 2002 year of income

Q7.   What happens when you have other incomes along with employment income?

A7.   Declare all the income in the relevant columns of the tax return; giving supporting evidence e.g. rent schedules, dividend certificates, business accounts e.t.c.

Q8.   How do you check if you have paid the right amount of tax?

A8.  Obtain the relevant tax rates from any KRA office nearest to you and compute your tax liability to cross check for accuracy.

Q9.   What do you do if you think you have the wrong amount of tax?

A9.   If you have underpaid, please pay the balance. In case of overpayment, you may apply for a refund or advice the Commissioner to utilize it for future tax liability.

Q10.   What are the consequences of not paying the right amount of tax?

A10.   If you underpay, penalties and interest will be imposed on the difference. Overpayment on the other hand, will deprive your business of the much needed operating income.

Q11.   What do you do to ensure you always pay the right amount of tax each year?

A11.   Use the relevant tax rates to compute your tax liability and claim all expenses and reliefs you are entitled to. Incase of difficulty please consult your tax agent or any KRA office nearest to you.

Q12.   Do you have to keep records?

A12.   Record keeping will help you to accurately determine your correct tax liability i.e to avoid overpayment or under declaration of income and tax.

Q13.   What are your rights?

A13

• To only pay the equitable tax.
• To obtain a refund in case of overpayment.
• Access to full information regarding your tax matters, including PAYE matters.

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