Kenya Revenue Authority (KRA) has implemented new Pay as You Earn (PAYE) rates in 2020.
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KRA New PAYE and VAT Rates in response to COVID-19
Taxes play a fundamental role in Kenya’s sovereignty. We significantly fund our national budget though Taxes. To mitigate the effects of COVID – 19 to the Kenyan economy, the Government has proposed various measures including the following:
- Reduction of Personal Income Tax top rate (PAYE) from 30% to 25%
- 100 % Tax Relief for persons earning up to Ksh. 24,000
- Reduction of Resident Corporate Income Tax rate from 30% to 25%
- Reduction of Turnover Tax rate for SMEs from 3% to 1%
- Immediate reduction of VAT rate from 16% to 14%
Further to this, the Government has implemented the following measures:
- Suspension of all listing for all persons including companies at Credit Reference Bureau (CRB)
- Lowering of Central Bank Rate (CBR) to 7.2%
- Lowering of Cash Reserve Ration (CRR) to 4.2%
- Central Bank of Kenya to offer flexibility to banks on loans that were active as of March 2020 to maintain liquidity levels
- Facilitating expedited payment of VAT Refunds by allocating an additional Ksh. 10B
- Setting up a fund to which players in the Public and Private Sector are contributing in support of Government efforts
As the Country faces this global health challenge, all citizens are called upon to play their part. Therefore, we are encouraging all taxpayers to continue paying all taxes due to support the Government in provision of critical services. Taxpayers are required to determine correctly their tax liability and remit the same in a timely manner.
On its part, KRA will continue supporting individuals and businesses in accessing our services to ensure all taxes are paid in a timely manner at this critical time. KRA will decisively handle any matter that pertains to deliberate non-payment of taxes. In the event that a taxpayer is not able to honour the agreed payment plan, it’s mandatory that the same is reviewed and agreed with our debt team.
KRA appreciates that taxpayers are required to provide proof of transaction in response to VAT inconsistency reports. Taxpayers are supposed to submit documents and in some instances appear in person at our premises. This is not tenable in the current environment.
To mitigate this, KRA has deferred the physical submission of documents and appearance before our teams. Taxpayers will be duly notified of when they can appear in person. In the interim, taxpayers are advised to submit evidence of transactions through [email protected].
We are also encouraging taxpayers to access our tax services on our online platforms.
- For Domestic Taxes and all frequently requested services, log on to https://itax.kra.go.ke/KRA-Portal/
- For Customs related taxes, log on to iCMS (Integrated Customs Management Systems) and the Simba System
- For Supply Chain Management (SCM) or e-procurement, log on to http://www.kra.go.ke/en/tender
- For additional support, call our Contact Centre on Tel: 020 4 999 999, 0711 099 999 or Email: [email protected]
COMMISSIONER GENERAL
(PREVIOUS)Below are the new monthly tax bands:
| Monthly Bands of Taxable Income (KES) | Tax Rate |
|---|---|
| 0 – 12,298 | 10% |
| On the next 11,587 | 15% |
| On the next 11,587 | 20% |
| On the next 11,587 | 25% |
| Over 47,059 | 30% |
| Personal Relief: KES 1,408.00 per month | |
| Minimum Taxable Income: KES 13,486.00 per month | |
Kenya Revenue Authority (KRA) has implemented new Pay as You Earn (PAYE) rates in 2020.
This comes months after the Finance Act 2016 was signed into law by the president.
This act revised the tax rates and increased personal relief from Ksh. 13,944 per year to Ksh. 15,360 per year.
The new rates took effect in January 2017.
In the new structure, KRA had widened the tax bands.
This is a change from the Kenyan income tax brackets in 2016 and earlier.
KRA PAYE New Rates 2020 in Kenya & Income Tax Brackets
Below are the new PAYE rates in Kenya effective January 2019:
On the first Ksh. 134,164 …………… ….10%
On the next Ksh.126, 403 ……………….15%
On the next Ksh.126, 403 ………………..20%
On the next Ksh. 126,403 ………………..25%
On all income over Ksh. 513, 373……….30%
If you want to know what this more, you can use a local PAYE calculator to understand the implications.
Let me present you with an example of what the new rates mean using a calculator:
Example:
If your gross salary is Ksh. 30,000 per month, the effective tax rate is 9.53%, your net pay will be Ksh. 25,160.74, and PAYE will be Ksh. 2,859.26. Now, let’s compare this with earlier rates for the same gross salary. Before the 2016 Finance Act was passed, for a person earning Ksh. 30,000 per month, the effective tax rate was 10.42% a net salary of Ksh. 24,893.42, a PAYE of Ksh. 3, 126.60. Big difference, huh? Not really. The new rates save this person Ksh. 267.32 per month which translates to Ksh. 3,210 per annum. The new personal relief of Ksh. 1,280 per month and 15,360 per annum applied effective January 2017. Before the implementation of the Finance Act 2016, the personal relief was Ksh. 1, 162.
You can access a calculator on https://calculator.co.ke/kra-salary-income-tax-paye-calculator
How do the new rates affect employee income?
Well, while we have been made to believe that they will reduce the tax burden on taxpayers, the difference is negligible. Not worth all the hype that was created.
This reminds me of when you hear that the government has released several hundreds of millions to pay civil servants only to realize that each civil servant will be getting Ksh. 307.
The new method of calculation does not favor high-income earners either since while a person earning Ksh. 30,000 will save Ksh. 267.32, a person making Ksh. 500,000 saves only Ksh. 608.30.
So just don’t get too excited yet since the only important change that has been made is the calculation method.
This is not the first time that KRA is making changes to its tax structure since it has revised various tax features over the years.
In 2015, the National Hospital and Insurance Fund (NHIF) rates in Kenya were increased from the standard Ksh. 320 paid by most formal workers and this meant that employers and employees had to start making higher contributions.
At present, the rates range from between Ksh. 150 and Ksh. 1,700. The National Social Security Fund (NSSF) rates have also been increased in previous years.
