It’s that time of the year again. The KRA deadline is looming, your iTax portal is giving you anxiety, and you’re wondering if you’re paying for things you don’t even understand. We’ve all been there, staring at the screen, confused between PAYE and VAT. Relax, you’re not alone.
This guide breaks down the 5 types of taxes every Kenyan should know about before you hit that submit button. No jargon, just straight-up info to help you file like a pro and keep the taxman happy.
1. PAYE (Pay As You Earn) – The Salary Deduction
This is the one that bites every month from your payslip. PAYE is the income tax deducted from employment income. If you’re on a regular job in Nairobi, Mombasa, or anywhere with a payslip, you know this one well.
Your employer calculates and sends it to KRA directly. But here’s the catch: you still need to declare it in your annual return. It’s not automatic.
Key Things to Note About PAYE:
- It’s Graduated: The more you earn, the higher the percentage you pay. The first KES 24,000 per month is tax-free (Personal Relief).
- Check Your P9: Always ensure your employer has given you a correct P9 form. Mistakes happen, even at big companies in Westlands or Industrial Area.
- Not Just Basic Salary: PAYE is calculated on your total employment benefits – house allowance, bonuses, car benefits – the whole package.
2. Personal Income Tax (For The Hustlers)
Not on a monthly salary? This one’s for you. If you’re a freelancer, consultant, landlord, or have any other business income, you pay tax on that profit under Personal Income Tax. You file this via your iTax under the “Turnover Tax” or “Installment Tax” modules depending on your income level.
Think of the graphic designer in Kilimani, the mitumba seller in Gikomba, or the landlord with a few apartments in Kahawa Sukari. This is their main tax.
How It Works:
- You declare your total income (gross) and subtract your allowable business expenses.
- You pay tax on the remaining profit. The tax rates are the same as PAYE bands.
- Pro Tip: Keep every single receipt! From your M-Pesa charges for business to that printer paper bought from a shop in town. They reduce your taxable income.
3. Value Added Tax (VAT) – The Consumer Tax
You pay this every day, maybe without realizing it. VAT is a tax on the supply of goods and services, currently at 16%. It’s added to the price of things like electronics, restaurant meals, and certain professional services.
When you see “VAT inclusive” on a supermarket receipt from Naivas or Quickmart, that’s it. But not everyone charges it.
VAT Rules You Must Know:
- Registered Businesses: Only businesses with a yearly turnover of KES 5 million and above must register for, charge, and remit VAT to KRA.
- Your Role: As a consumer, you just pay it. As a business owner hitting that threshold, you must register. Failure is a serious penalty.
- Exempt vs. Zero-Rated: Some items like unprocessed foods are exempt (no VAT). Others like exports are zero-rated (0% VAT, but you can claim back VAT on your inputs). Know the difference.
4. Turnover Tax (TOT) – For Small Business
This is a simplified tax for the small guys. If your business has an annual turnover between KES 1 million and KES 25 million, you can opt for Turnover Tax. It’s a flat rate of 3% of your gross sales, with minimal paperwork.
Perfect for the mama mboga who has grown her stand, the small hardware shop in Eldoret, or the salon in Kisumu that’s doing well.
Is TOT For You?
- Eligibility: Turnover between KES 1m – KES 25m. Below KES 1m? You’re exempt. Above KES 25m? You graduate to normal Income Tax and VAT.
- Simplicity is Key: You don’t need complex accounts. Just declare your gross turnover and pay 3%.
- Warning: You cannot claim business expenses if you’re on TOT. Do the math to see if 3% of your gross sales is less than what you’d pay on your net profit under normal income tax.
5. Withholding Tax – The Deduction-at-Source Tax
This one confuses many. Withholding Tax is not a separate tax. It’s a method of collecting income tax in advance. When you make certain payments (like for professional services, rent, or commissions), you are required to deduct a small percentage and send it directly to KRA on behalf of the payee.
For example, if a company in Nairobi pays a marketing consultant KES 50,000, they should deduct 5% (KES 2,500) as Withholding Tax and pay the consultant KES 47,500.
Common Withholding Tax Scenarios:
- Rent (Residential 10%, Commercial 12%)
- Professional Services (e.g., lawyers, architects): 5%
- Commission: 5%
- Why it matters: The payee (consultant, landlord) uses the certificate you give them to credit that tax against their final income tax liability. If you don’t deduct it, they get a huge bill later, and you could be penalized.
Navigating KRA iTax: A Kenyan Reality Check
Knowing the taxes is one thing. Dealing with the system is another. Let’s talk real talk about filing in Kenya. First, timing is everything. Don’t wait until the last week of June. The iTax portal often slows down or crashes due to traffic, just like the Thika Road Superhighway during rush hour. Do it mid-month, or during off-peak hours like late evening.
Second, have your documents ready: your KRA PIN, your P9 from your employer (if any), and records of any other income. For the hustlers, your bank statements or M-Pesa business statements are gold. A practical tip? Take a screenshot or save the PDF confirmation every time you make a payment or submit a form. That “Request Received” slip is your proof if the system glitches.
Finally, know where to go for help. The KRA Times Tower building on Haile Selassie Avenue has help desks, but you can also visit their smaller regional offices. Sometimes, a physical visit gets faster results than 100 emails. Remember, ignorance of the tax law is not an excuse they accept. Getting these 5 types of taxes straight is your first defence against unnecessary penalties and stress.
Conclusion
Filing your returns doesn’t have to be a nightmare. It boils down to understanding these five key taxes: PAYE for your salary, Personal Income Tax for your hustle, VAT on goods, Turnover Tax for small businesses, and Withholding Tax on specific payments.
Get these right, keep your records straight, and file on time. Take an hour this week, log into iTax, and start the process. Your future self will thank you for avoiding those late penalties. Got a tax question that’s still bugging you? Drop it in the comments below and let’s help each other out.