Income tax in Kenya is governed by the Income Tax Act and charges tax on various types of income earned by individuals and corporations. There are several methods of collecting income tax, including: Pay As You Earn (PAYE) for employed individuals; Corporation Tax for companies; Installment Tax for those with tax liability over Kshs. 40,000; Withholding Tax deducted at source; Advance Tax paid before vehicle licensing; Turnover Tax on business with annual sales over Kshs. 1 million; Residential Rental Income Tax; and Capital Gains Tax on property transfers.

1. INCOME TAX OVERVIEW

2. Introduction
Taxation of Income in Kenya is governed by the provisions of the Income Tax Act (Cap. 470), which became effective
on 1st January 1974.

3. Definition
Income Tax is a direct tax on income and is charged for each year of income upon all the income of a person, whether
resident or non-resident, which accrued in or was derived from Kenya.

4. Types of incomes chargeable to tax
 Business Income from any trade or profession
 Income from employment or from services rendered

5. Types of incomes chargeable to tax contd’
 Rent Income
 Pensions Income
 Investment Income - dividends and interest among others.

6. Methods of collecting income tax
1. Pay As You Earn (PAYE)
PAYE is a method of collecting tax at source from individuals in gainful employment.
Gains or Profits includes wages, causal wages, salary, leave pay, sick pay, payment in lieu of leave, fees, commission,
bonus, gratuity, or subsistence, travelling, entertainment or other allowance received in respect of employment or
services rendered.

7. 2. Corporation Tax
Corporation tax is levied on corporate bodies such as Limited Liability Companies and Trusts.
Resident Companies are taxable at a rate of 25% while non-resident companies are taxable at the rate of 37.5%.

8. 3. Installment Tax
Tax that is paid by individuals who have a tax liability that is not fully covered under PAYE, of over Kshs. 40,000
payable for any year.
Installment tax is paid by both individuals and corporate taxpayers.

9. Installment Tax Contd’
The installments are spread evenly @ 25% of the tax due and payable on or before the 20th day of the 4th, 6th, 9th and
12th months of the year for all taxpayers except those in the Agricultural sector whose installments are paid @ 75% in
the 9th month and 25% in the 12th month.

10. 4. Withholding Tax
This is tax that is deducted at source on certain payments to both resident and non-resident persons on income from
various sources.
The percentage deducted varies between incomes and is dependent on whether you are a resident or non- resident.

11. 5. Advance Tax
This is a tax paid in advance before a public service vehicle or commercial vehicle is licensed at the applicable rates.
Advance tax is not a final tax. Individuals who have paid any advance tax are required to declare the same in their
individual income tax returns submitted yearly and pay any additional tax due.

12. 6. Turnover Tax
Turnover Tax(TOT) is a tax charged on gross sales of a business.
It is payable by resident persons whose gross turnover from business is more than Kshs. 1,000,000 and does not
exceed or is not expected to exceed Kshs 50,000,000 in any given year.

13. 7. Residential Rental Income
This is tax payable by resident persons (individual or company) on rental income earned for the use or occupation of a
residential property where the rent income is between Kshs. 144,000 (Kshs. 12,000 per month) and Kshs. 10 million
per annum.

14. 8. Capital Gains Tax (CGT)
CGT is tax that is levied on transfer of property situated in Kenya, acquired on or before January 2015.
It is declared and paid by the seller of the property