You just got paid for that side hustle, or maybe you sold your old PlayStation online. You’re feeling good, right? But here’s the question: did you set aside something for KRA? If your answer is “Hii ni yangu, why would I?” you need to read this.
Many Kenyans, especially hustlers and digital workers, assume tax is just for the monthly payslip from a formal job. That’s a costly mistake. This article breaks down the 6 types of income that are taxable in Kenya that fly under the radar. Knowing these can save you from a nasty penalty notice during the next tax season.
1. Income from Digital Platforms & Online Work
This is the big one for the Gen Z and millennial crowd. If you’re earning from Upwork, Fiverr, YouTube ads, or even selling digital art on Instagram, KRA is watching. They call this “income from business” and it’s fully taxable.
It doesn’t matter if the client is in the US or Germany. Once that money hits your M-Pesa or bank account, it’s considered Kenyan-sourced income if you’re working from here. The rise of PayPal and Payoneer has made tracking this easier for tax authorities.
How KRA Catches Up
KRA’s system, iTax, is now integrated with bank reporting. Large or frequent transactions from foreign sources can raise a flag. The best move? Declare it as business income and file your returns. For a freelancer in Kilimani making an average of Ksh 50,000 a month from online gigs, that’s a significant tax obligation they might be ignoring.
2. Rental Income from “Informal” Arrangements
You don’t need a fancy agent in Westlands to be a landlord. Renting out your extra room in Umoja, your parking space in the CBD, or even your car on weekends through informal agreements counts. This is rental income, and 10% of your gross rent is supposed to be remitted as withholding tax.
Many think because there’s no written lease, it’s invisible. But your tenant’s bank or M-Pesa statements are a paper trail. If they claim expenses and list your phone number, you’re on the radar.
3. Winnings from Betting, Gaming, and Competitions
Yes, even that “lucky” weekend. Betting winnings are subject to a 20% withholding tax. The company (like SportPesa or Betika) should deduct it before paying you. But what about that office raffle you won? Or the Instagram giveaway for a shopping voucher worth Ksh 20,000?
Prize winnings are also taxable. The organizer is legally required to withhold 20% and give you a certificate. If they don’t, the income is still technically yours to declare. Don’t assume it’s all “free money.”
4. Income from Barter Transactions
You’re a graphic designer and you design a logo for a restaurant. Instead of paying you Ksh 15,000, the owner gives you catering for a party of 20. Sweet deal? Absolutely. Taxable? Shockingly, yes.
The market value of the service or goods you received (that catering) is considered income. You must declare the Ksh 15,000 equivalent. Barter is common in the creative and startup scene, but to KRA, it’s a transaction with a measurable value.
5. Capital Gains from Personal Asset Sales
Sold your car? Sold land back in the village? Made a profit? That profit is a capital gain. Since 2015, capital gains tax in Kenya is 15% of the net gain. The key is the gain, not the total sale price.
So, if you bought a plot for Ksh 800,000 and sold it for Ksh 1.2 million, your gain is Ksh 400,000. The tax is 15% of that (Ksh 60,000). The lawyer or agent facilitating the transfer is required to withhold this tax and remit it to KRA. Many individuals are unaware this is happening or that they need to account for it.
6. Gifts and Donations (Beyond Family)
Your uncle giving you money for your wedding? Generally not taxable. But if a company gifts you a car for being a top sales agent, or a friend gifts you a large sum of money with no familial ties, it can be viewed as taxable income.
This is a grey area but covered under “gains or profits” in the Tax Act. Large, non-familial gifts can be construed as income, especially if they are recurrent or linked to a service you provided. It’s less common to be enforced on personal gifts, but for corporate gifts, be wary.
The Kenyan Reality: iTax, Penalties, and the “Short Rains” Season Wake-Up Call
Let’s get local. The deadline for filing annual tax returns is 30th June. But here’s the practical tip: most salaried Kenyans get a rude awakening from their employers around April. Why? Companies are preparing their P9 forms and often do a preliminary check. If they see unexplained deposits in your bank account (used for your payroll), they might ask questions, forcing you to regularize with KRA.
This period, often during the long rains, is when many realize they have undeclared income. The penalty for late filing is Ksh 10,000 or 5% of the tax due, whichever is higher, plus interest at 1% per month. For a side hustle earning Ksh 20,000 a month, that penalty can wipe out months of profit.
Your action point? Log into iTax today. Under the “Returns” menu, look for “Income Tax” and select the correct form (often ITRF for resident individuals). Declare all income streams. If you’re confused, walk into any KRA Huduma Centre – like the one at Times Tower or at your county headquarters. The help is free, and it’s better to ask than to assume and pay later.
Remember, ignorance of the law is no defence. With KRA’s tech getting smarter, that M-Pesa from your side gig is as visible as your monthly salary.
Conclusion
The landscape of work and earning in Kenya has changed, but tax laws have kept pace. The 6 types of income we’ve discussed – from online work to selling personal assets – are all legally taxable in Kenya. Assuming tax is only for the “employed” is a fast track to fines and back-tax demands.
Your best defence is proactive declaration. Treat your side incomes with the same seriousness as your main job. Get familiar with the iTax portal, keep simple records of your earnings, and file your returns on time. Protect your hustle by making it legit.
Got a question about a specific income stream? Drop it in the comments below – let’s demystify this together.