What you absolutely need to know about filling your taxes now

In Kenya, the month of June is synonymous with tax returns. This is because the deadline for filing tax returns in Kenya falls on every 30th of June every year. Failure to file tax returns attracts a penalty of Sh10,000 per month. As taxpayers race to beat the deadline this month, we take a look at some of your tax obligations.

Corona tax reliefs

In April this year, President Uhuru Kenyatta signed The Tax Laws (Amendment) Bill 2020 into law. The bill included a 100 per cent Pay As You Earn (PAYE) tax relief for Kenyans earning less than Sh28,000 per month.

Those earning above this figure got a reduction of between 30 and 25 per cent. The bill also amended the Income Tax Act (CAP 470), the Value Added Tax Act of 2013, the Excise Duty Act (2015), the Tax Procedures Act (2015), Miscellaneous Levies and Fees Act (2016) and the Retirement Benefits Act (1997).

VAT was lowered from 16 to 14 per cent, Corporation tax was revised to 25 per cent and non-resident tax on dividends increased from 10 to 15 per cent. The threshold for turnover tax was raised to between Sh 1 million and Sh50 million, while turnover tax rate was lowered from 3 to 1 percent.

Income Tax and Value Added Tax

According to Jeremiah Rugunya, a certified public accountant and the lead consultant with Prolific Business Consultants, Income Tax and Value Added Tax are two of the major taxes for people with small and medium businesses.

“There is income tax for companies and individuals. Companies are taxed at a flat rate of 25 per cent (30 per cent before coronavirus) of the profit made.”

Sole proprietorship and employees fall under individual income tax and are taxed under a graduated scale (Tax bands). “This is similar to PAYE. If you make above 24,000 profit in a month, you start the tax graduation from 10 per cent to 30 per cent depending on amount made,” he says. You can pay your income tax in installments on months four, six, nine and 12.

With VAT, Jeremy says that you should add a charge on your invoice. For example, if you have valued a bookkeeping service at Sh10,000, you will need to charge your client a 14 per cent VAT charge equal to Sh1,400.

As a result, your invoice will be Sh11,400, of which Sh1,400 will be government money. “If you don’t have any activity but have registered for VAT, you are supposed to file a nil return to avoid penalties,” says Jeremy.

Withholding Tax

This applies to professional services and consultants and is set at five percent. “If the payment for a service is above 24,000, a five percent tax is withheld and submitted to KRA. A certificate is then sent to the withholder and the payee,” says Jeremy. Withholding income for contractors has been set at three percent, withholding on VAT is set at two percent, and non-resident at 25 per cent.

Digital Services Tax (DST)

The Kenya Revenue Authority is set to start taxing the digital economy in a bid to tap into Kenya’s rising tech industry. This tax comes after the Finance Act of 2019 paved the way for the introduction of a provision for taxation of income from a digital market.

The digital tax has defined a 'Digital Marketplace' as a platform that enables direct interaction between buyers and sellers of goods and services through electronic means.

“The digital services tax deducted from resident entities and branches is to be treated as an advance tax, available for set-off against the tax payable for the year of income,” says KPMG in analysis report on the tax.

This tax will involve a 1.5 per cent digital tax that will be levied on gross transaction values. It’ll be payable when transferring payment to the service provider.

Under the Value Added Tax (Digital Marketplace Supply) Regulations 2020, taxable supplies done through the digital marketplace shall include online advertising, electronic services, and downloadable digital content including downloadable mobile applications, e-books and movies.

Other items that may attract levies include subscription based media, e.g. Netflix, streaming of TV shows and music, podcasts, online gaming, and software programs.

Returns

The returns are done on the iTax platform. There are two types of returns. Individual tax return and Corporate tax returns for corporates and partnerships. According to KRA, the types of tax returns you should file on iTax include:

 PAYE: Companies and partnerships without PAYE required to file nil.

 Corporation Tax: 25 per cent for residents and 37.5 per cent non-residents. Filed through income tax-company return.

 Installment tax: Paid in advance in four equal installments.

 Withholding tax

 Residential Rental Income Tax: 10 per cent on gross rent received. Filed monthly or before date 20. Strictly based on what is collected without offsetting any expenses. Covers the rent income bracket of Sh144,000 to Sh10 million per year.

 Commercial Rental Income Tax: Filed through the annual Income Tax Returns.

 VAT: Paid on or before the 20th day. Filed under VAT3 Return form.

Advance tax: Paid before a PSV or commercial vehicle goes for annual inspection.