Pay As You Earn (PAYE)

This comprehensive guide aims to provide an in-depth understanding of PAYE tax in Kenya, including its definition, how it works, who is eligible for it, how to calculate it, and the penalties for non-compliance. By the end of this guide, you will have a clear understanding of PAYE tax and be able to comply with its regulations as an employer or employee in Kenya.

Jun 29, 2023 - 12:26

Sep 4, 2023 - 09:21

1. What is Pay As You Earn (PAYE) Tax in Kenya?

Pay As You Earn (PAYE) Tax is a form of taxation in Kenya that requires employers to deduct taxes from employee salaries and wages. It is the most common type of income tax used in the country, and it applies to all employees regardless of their occupation or salary level. The amount of PAYE Tax deducted depends on the employee’s total taxable income for the year.

Employers are responsible for deducting income tax, National Social Security contributions and National Health Insurance contributions from their employees' salaries or wages before paying them. These deductions need to be accurately reported through PAYE returns.

2. PAYE Tax Rates - What Can You Deduct?

Tax Bands	Tax Rate
Ksh. 24.000 per month or Ksh. 288,000 per year	10%
Ksh. 8,333 per month or Ksh. 100,000 per year	25%
Income over Ksh. 467,667 per month or Ksh. 5,612,000 annually	30%
Income over Ksh. 300,000 per month or Ksh. 3,600,000 annually	32.5%
Income over Ksh. 800,000 per month or Ksh. 9,600,000 annually	35%

3. Registering for PAYE Tax in Kenya

If you are an employer in Kenya, you are required by law to register for Pay As You Earn (PAYE) tax. This tax is collected by the Kenya Revenue Authority (KRA) and is deducted from your employees salaries before they receive them. Registering for PAYE tax is a crucial step in ensuring that you comply with the tax laws in Kenya and avoid any penalties or legal issues.

To register for PAYE tax in Kenya, there are certain requirements that you need to meet. These include having a valid Personal Identification Number (PIN), being registered as a corporate company with the Registrar of Companies, and having at least one employee who earns a taxable income.

4. PAYE Returns Filing and Payment Procedures in Kenya

Companies with employees deduct from employee salary every month and remit to Kenya Revenue Authority (KRA) on or before the 9th of every month.

5. Step-by-Step Guide on How to File PAYE Returns in Kenya

Gather the Necessary Employee Information and Documents.
Access the KRA iTax Portal
Login or Register for an Account.
Select "Returns" and Choose "Income Tax - PAYE"
Fill in the Required Details for Each Employee
Verify and Submit the Return Online
Make Payment of Any Outstanding Taxes (if applicable)

6. Penalty for Failure to Make Deductions

Where a corporate body which is required to make a deduction fails to remit the deducted amount or file the monthly returns as required or directed by the Kenya Revenue Authority (KRA), is liable to a fine of not less than Ksh. 10,000 shillings each month.

7. Personal Relief Claim

Personal relief refers to a tax benefit provided by the Kenyan government to individuals that helps reduce their overall tax liability. It is an important aspect of the country's tax system as it aims to alleviate the financial burden on individuals and ensure a fair distribution of income.

A resident individual in receipt of taxable income is entitled to a tax relief (personal income relief) of Kshs. 28,800 per annum (Kshs. 2,400 per month).

8. Tips for Ensuring Accuracy and Compliance with PAYE Returns Filing

Maintain proper employee records and documentation.
Keep track of salary changes and updates.
Familiarize yourself with the latest Kenya tax laws and regulations.
Seek professional help if needed.
Audit-proof your records.
Schedule regular reviews of your payroll system.

9. Conclusion

In conclusion, PAYE Tax serve as a mechanism for accurate taxation in Kenya. They enable employers to fulfill their obligations towards paying taxes while providing transparency and accountability in terms of employee earnings and deductions. Similarly, employees can use this information to verify that they are being taxed correctly. By comprehending the significance of PAYE Tax within the broader framework of taxation, individuals and businesses can navigate this process with confidence.