Understanding Tax Relief in Kenya

Tax relief is a term used to describe a reduction in the amount of tax that an individual or business has to pay. In Kenya, tax relief plays a crucial role in providing financial relief to taxpayers and promoting economic growth. It is important for individuals and businesses to understand what tax relief is and how it works, as it can have significant implications on their finances.

Overall, tax relief is an important tool that the Kenyan government use to promote economic growth and provide financial support to taxpayers. By understanding what tax relief is and how it works in Kenya, individuals and businesses can make informed decisions about their finances while contributing to the country's economic development.

All Kenyan residents are entitled to a personal tax relief of Ksh. 2,400 per month (Ksh. 28,800 annually) against their taxable income. This is equivalent to the 10% tax rate band for income below Ksh. 24,000 per month (Ksh. 288,000 annually).

In Kenya, employers provide personal relief to all employees, regardless of their marital status. Married couples can choose to file their tax returns jointly while keeping their incomes separate instead of combining them.

Personal, insurance, affordable housing, form part of tax reliefs in Kenya. These incentives reduce the amount of tax one has to pay and are granted on a monthly basis.

• Personal Income Tax Relief : In Kenya, personal income tax is levied on all income earned by a resident individual during a given year. This includes salaries, wages, bonuses, commissions, and any other form of compensation received from employment or business activities. All Kenyan residents are entitled to a personal tax relief of Ksh. 2,400 per month (Ksh. 28,800 annually) against their taxable income. This is equivalent to the 10% tax rate band for income below Ksh. 24,000 per month (Ksh. 288,000 annually).
• Affordable Housing Relief : Affordable housing relief is eligible to a resident individual who register for affordable housing scheme or has applied and is awaiting the allocation of a house under an affordable housing scheme and is saving for a purchase under an affordable housing scheme approved by the government of Kenya.Affordable Housing Relief is set at 15% of the gross emoluments of the employee’s income contribution but does not exceed Ksh108,000 per annum.A resident individual who has been allocated a house under the affordable housing scheme and has been subject to an affordable housing relief is not re-eligible for a subsequent relief.
• Insurance Relief : Insurance relief is offered by the government of Kenya to all insurance policy holders. A resident individual who has paid a premium for an insurance made by him on his life, education and health or on the life of his wife or of his child is entitled to an insurance relief of 15% of the amount of premiums subject to a maximum of Ksh. 60,000 per annum.

Qualifications for Insurance Policy Reliefs

• An education policy with a maturity period of at least ten years.
• Life or education policies whose term commences on or after the 1st January, 2003.
• A health policy whose term commences on or after the 1st January, 2007.
• A health contribution made to the National Hospital Insurance Fund (NHIF).

Where a policy is surrendered before its maturity, all the relief granted to the policy holder is recovered from the surrender value of the policy and remitted to the Kenya Revenue Authority (KRA) by the insurer.

• Foreign Tax Relief and Tax Treaties : Foreign Tax Relief refers to the tax relief provided by a country to its taxpayers for the taxes paid in another country. It is a mechanism that ensures that taxpayers are not subjected to double taxation on the same income. Double taxation can occur when a taxpayer earns income in one country and is taxed on that income by both the source country and their home country.

Foreign Tax Relief is designed to prevent this situation from occurring and ensure that taxpayers are only taxed once on their income.

Foreign tax credits are claimable where there is a Double Tax Treaty (DTT) between Kenya and the other tax jurisdiction. Unilateral tax credits are also available for Kenyan citizens. 

In conclusion, taxpayers should not overlook the importance of exploring available tax reliefs. By doing so, they can maximize their savings while contributing to government and society in a positive way. So whether you're an individual or a business owner, take advantage of these tax incentives.