Tax (from the Latin taxo; “I estimate”) is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law.Taxes are also imposed by many sub national entities. Taxes consist of direct tax or indirect tax, and may be paid in money or as its labor equivalent (often but not always unpaid labor). A tax may be defined as a “pecuniary burden laid upon individuals or property owners to support the government […] a payment exacted by legislative authority.” A tax “is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority” and is “any contribution imposed by government […] whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name.”
Types of Taxes in Kenya
Income Tax Department administers various direct taxes, which have different rates:
- Pay As You Earn (PAYE): PAYE is a method of collecting tax at source from individuals in gainful employment. The employer deducts a certain amount of tax from his / her employee’s salary or wages on each payday then remit the tax to the Authority. This relieves the employee from paying taxes at the end of the year and shifts the responsibility to the employers.Every individual who receives income is granted a tax credit or a tax relief from the Authority, this is known as Personal Relief. Insurance relief and mortgage relief are also available for eligible persons. The total tax credit is spread evenly during the charge year. At the end of the year, an individual will submit his self-assessment on total income received from various sources. Should the tax credit be lower than actual tax charged during the year, the balance of tax due will be payable.
- Corporation Tax: Corporation tax is a form of income tax that is levied on companies. Resident companies are taxable at a rate of 30% w.e.f year of income 2000 while non – resident companies are taxable at a rate of 37.5%.w.e.f year of income 2000.
- Withholding Tax: Withholding taxes are deducted at source from the following sources of income: Interest, dividends, royalties, management or professional fees, commissions, pension or retirement annuity, rent, appearance or performance fees for entertaining, sporting or diverting an audience.
- Advance Tax: Advance tax is applicable to Matatus and other Public Service Vehicles. It is not a final tax, but a tax partly paid in advance before a public service vehicle or a commercial vehicle is registered or licensed.The current rates are:
- For vans, pickups, trucks and lorries Kshs.1, 500 per ton of load capacity per year or Kshs.2, 400 whichever is higher.
- For saloons, station wagons, mini-buses, buses and coaches, Kshs.60 per passenger capacity per month or Kshs.2, 400 whichever is higher
It is important to keep yourself updated on any changes in rates . The Kenya Revenue Authority website is a great resource for all you need to know about taxes.