The mortgage must be either for the purchase or improvement of premises occupied for residential purposes . The maximum deductible amount is Kshs . 300,000 / - per annum ( KShs . 25,000 per month ).
Pension contributions : Amounts contributed by an employee to a registered pension fund including NSSF is a tax-deductible expense . The allowable deductions shall be the lesser of : actual contribution or , 30 % of salary or , Kshs . 20,000 per month .
Tax Reliefs
Further , in order to arrive at the net tax payable , the following reliefs are granted :
Personal Relief is granted to resident individuals currently set at Kshs . 2,400 per month or Kshs . 28,800 per year .
Insurance Relief is granted to an employee who has paid insurance premiums for life or health ( including NHIF ) or education polices for himself , his wife or child .
The Relief is given at the lesser of KShs . 5,000 per month or 15 % of premiums paid up to a maximum of Kshs . 60,000 per annum .
For education and health , the policy should have a maturity period of at least 10 years .
Non-taxable employment benefits
As per the provisions of the Income Tax Act , not all benefits provided by an employer to an employee are liable to taxation including ;
• Per diems ( night out allowance ). These are per day allowances normally given for upkeep of staff when on official travel . The first KShs . 2,000 per day is deemed to be a reimbursement and thus not taxed . Anything above that must be fully accounted for and supported , else , the same is taxed . The Act does not provide per diem rates for overseas travel .
• Meals provided by the employer up to a maximum of Ksh 4,000 per month or Kshs . 48,000 per year .
• Amounts that are mere reimbursement of expenses incurred by an employee on behalf of the employer
• Mileage claims fully supported by a transport policy .
• Medical cover and expenses paid for by employer
• In the case of non-Kenyan citizens who are in Kenya solely to serve the employer , expenditure on passages between Kenya and any place outside Kenya borne by the employer .
• Pension contribution made by an employer , to a registered or unregistered scheme that is within the allowable limit of Ksh . 20,000 per month or Ksh . 240,000 per year .
• An amount paid by an employer as gratuity or similar payment in respect of employment or services rendered , which is paid into a registered pension scheme .
• Education fees of employee ’ s dependants or relatives paid from income which has already been taxed in the hands of the employer .
• Non-cash benefits that in aggregate do not exceed KShs . 36,000 per annum are not taxable
• Group Insurance Cover : Premiums paid by the employer for group life policy are not taxable benefits on the employee unless it confers a benefit to the employee or any of his dependants
Accounting and Collection
Through the Pay As You Earn ( PAYE ) mechanism , employers are statutorily obligated to deduct income tax from their respective employees taxable emoluments ( both cash and non-cash ) and remit the same to Kenya Revenue Authority ( KRA ).
By the 9th of the following month , an employer has to file the PAYE return ( P10 ) through the KRA itax platform , generate a payment registration number ( PRN ) and remit the tax so withheld . For instance , the PAYE deducted from the July salaries is due on or before 9th August .
Penalties for non-compliance
Pursuant to the provisions of the Tax procedures Act , failure or late payment of tax attracts a default penalty of 5 % and further simple interest at 1 % for every month the tax remains outstanding . In line with the induplum principle , interest so charged cannot exceed the principal tax thereon .
Year-end procedures
Every year on or before 30 June of the year following the end of the year of income , all persons , including employees , are required to file their tax returns ( self-assessment returns ) for the previous year of income . To facilitate this exercise , employers are required to issue employees with a p9 certificate by the end of February of the following year .
I trust the above has provide some insights into the taxation of employment income in Kenya .
CPA Peter Kinuthia is a Tax Director at Resolute |
Business Advisory Limited . You can commune |
with him on this and other tax related issues via |
email |
on : |
Peter . Kinuthia @ resoluteadvisory . |
co . ke . |
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