Value Added Tax (VAT) is levied under the VAT Act, 2013 and the VAT Regulations, 2017. VAT is a tax on value addition and is accounted for using the input-output mechanism. There are five types of supplies that attract VAT at different rates: 16% for local taxable supplies, 8% on local supply of fuel (effective September 2018), 0% for zero-rated supplies and exports, exempt supplies, and supplies that are out of VAT scope.
VAT registration is required for persons making or expecting to make taxable supplies of over KES 5 million in a 12-month period. In determining the registration threshold, the sale of capital assets is excluded.
A person making taxable supplies below the registration threshold may voluntarily apply to the Commissioner and register for VAT.
Input tax on a taxable supply (or importation) may be deducted from the tax payable by a registered person to the extent that the supply was acquired to make taxable supplies. Input tax is allowable for deduction within six months after the end of the tax period in which the supply or importation occurred.
Recent changes to the VAT Act, 2013 through the Finance Act 2019 and The Statue Law (Miscellaneous Amendments) Act, 2019 include among others reduction of withholding VAT rate from 6% to 2%. Further there is an amendment to introduce refund of excess VAT arising from the withholding VAT regime in addition to refunds arising from making zero rated supplies. Further, taxpayers are now allowed to offset credits arising from withholding VAT against any other tax payable.
The time within which VAT refunds have to be lodged has been extended from twelve (12) months to twenty-four (24) months from the date the tax becomes due. Further, taxpayers are allowed to lodge VAT refund claims for any accumulated Withholding VAT credits for the period of thirty-six (36) months prior to 23 July 2019.
The Finance Act, 2019 has introduced the requirement for VAT unregistered persons to account for VAT on imported services. Previously, this requirement applied to VAT registered persons only. This measure will impact VAT unregistered entities in sectors such as oil and gas, financial institutions including the insurance sector, medical, educational and not for profit organizations.
The VAT Act 2013 has been amended to bring to charge supplies made through “digital market place” which is defined as a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means. The regulations to provide mechanisms for implementing taxation of digital transactions are to be issued by the Cabinet Secretary, National Treasury.
Import (customs) duty
Import duty is levied under the East African Community (EAC) Customs Management Act ('the Act'). Imported goods are generally subject to import duty at varied rates, including 0% for raw materials and capital goods, 10% for intermediate goods, and 25% for finished goods. However, a different rate of duty can be prescribed by the Council of Ministers of the EAC partner states. Enterprises established in an EPZ are exempt from customs duty on machinery and inputs for products manufactured for export while licensed oil and gas contractors with a Production Sharing Contract (PSC) with the government of Kenya are exempt from customs duty on importation of machinery, spares, and inputs used in exploration activities, excluding motor vehicles.
In addition, enterprises that are established under the Special Economic Zones Act enjoy import duty exemption. Where raw materials that are not subject to 0% import duty are used to manufacture goods for use locally within the EAC and for export outside the EAC, one may apply for remission under the EAC duty remission scheme. This is subject to a requirement for proof of export, and one may be required to execute a bond/bank guarantee. Further, assemblers of motor vehicles and motor cycles, among others, enjoy import duty remission under the scheme.
Under recent changes through the EAC Gazette Notice, some key sectors in the economy received various stays of application of EAC duty rates for the next one year on certain items.
As such, the metal and allied sector, textile and shoe manufacturers, and timber product manufacturers among others, will enjoy certain incentives. In addition, duty remission was granted on some raw materials used for manufacture of energy saving stoves, automotive seats, stone coated roofing tiles among others.
The law has been amended to clarify the conditions applicable on motor vehicle exemptions granted to disabled or physically handicapped persons. Additionally, there is an amendment to exempt additional items for use by the national carrier or any other airline designated under an air services agreement between the Kenyan government and a foreign Government, namely, lubricants, staff uniforms, calendars, diaries and pens as promotional materials.
Excise duty is imposed on the local manufacture or the importation of certain commodities and services. Excisable commodities include bottled water, soft drinks, cigarettes, alcohol, fuels, and motor vehicles. Excisable services include telephone and internet data services, fees charged for money transfer services, and other fees charged by financial institutions.
through the Finance Act, 2019 (the Finance Act), the Excise duty Act, 2015 has been amended to introduce a 20% excise duty on the amounts wagered or staked in betting activities. Amount wagered or staked is defined as “the amount of money placed by a person for an outcome in a betting transaction”.
Additionally, in July 2019 the Excise Duty (Excisable Goods Management System) Regulations, 2017 were amended to extend the scope of excisable products required to be affixed with excise stamps (at KES 0.50 per stamp for water) to include bottled water or similarly packaged waters and other nonalcoholic beverages (not including fruit or vegetable juices) in addition to mineral water and aerated water (at KES 0.60 per stamp for non-alcoholic beverages and cosmetics).
The tax authority issued a Public Notice to inform taxpayers of the requirement to affix excise stamps on products manufactured or imported into Kenya from 13 November 2019. All products imported prior to the go-live date are allowed in the market without excise stamps until 31 January 2020.
In July 2019 The Commissioner General adjusted excise duty rates upwards by 5.15% on all goods that are subject to specific excise duty rate. In addition, the Finance Act, 2019 assented on 7 November 2019 increase excise duty rates.
change introduced in the Excise Duty Act includes incentives for buyers of electric vehicles. Buyers of 100% electric powered vehicles will only pay 10% excise duty; a 50% decrease from the 20% charged for the average vehicle with a cylinder capacity of less than 1500cc.
The Finance Act 2019 has also amended the Excise duty Act with respect to the treatment of “other fees” charged by financial institutions. Excise duty is applicable on “other fees” charged by financial institutions. The amendment has excluded from excise duty “fees or commissions earned in respect of a loan or any share of profit or an insurance premium or premium based or related commissions”.
There is an amendment to exclude from excise duty various locally produced products such as sugar confectionery, chocolate and locally produced motor vehicles. Similarly, the Finance Act 2019, has introduced excise duty at 35% on imported gas cylinders. This is meant to be a deterrent to importation of the products and encourage production of the same locally. Excise duty rates for imported motor vehicles have also been increased to encourage local assembly.
Stamp duty is payable on transfer of properties, leases, and securities. The rates of stamp duty apply as specified in the Schedule to the Stamp Duty Act.
The rates of stamp duty are shown below:
||Stamp duty rate
|Transfer of immovable property:
|Creation or increase of share capital
|Registration of a company (nominal share capital)
|Transfer of unquoted shares or marketable securities
|Transfer of quoted shares of marketable securities
|Transfer of houses constructed under affordable housing scheme
|Registration of a debenture or mortgage:
||KES 20 per counter part
|Period of three years and under
||1% of annual rent
|Period over three years
||2% of annual rent
Tax on capital gains (CGT)
Gains derived on the sale or transfer of property by an individual or company are subject to a final tax at the rate of 5%. The definition of ‘property’ is widely drawn and includes securities in Kenyan resident private companies (though a specific exemption from Capital Gains Tax (CGT) exists for securities listed in Kenya).
The High Court has ruled that Paragraph 11A of the Eighth Schedule of the Income Tax Act cannot impose an obligation on a taxpayer to pay CGT on or before presenting a transfer instrument for registration as opposed to upon registration of the transfer instrument. The KRA has appealed the Court’s ruling, but no final decision is available at this date.
In addition an exemption is granted where the transfer of property is triggered by either a change in law, a government directive, internal restructuring within a group (with the exclusion of a transfer to a third party), or a transfer made in public interest (the latter being subject to the CS’s approval) from CGT
Payroll taxes are administered through the pay-as-you-earn (PAYE) mechanism of deducting income tax from employment income (salaries, wages, bonuses, commissions, etc.). PAYE also applies to taxable non-cash benefits.
It is the employers’ obligation to deduct and account for payroll taxes on a monthly basis.
The PAYE deducted thereof should be paid to the KRA by the 9th day of the following month.
The employer should submit a monthly PAYE return (can be filed online using the KRA’s electronic platform, i-Tax). This return, known as form P10, declares the PAYE for a specific month.
The tax tables applicable to individuals are provided in the Taxes on personal income section of Kenya’s Individual tax summary.
Employers’ National Social Security Fund (NSSF) contributions
Employers and employees are obligated to contribute monthly to the NSSF a standard contribution of KES 200 each. However, the new NSSF Act provides for a higher contribution rate of 6% of pensionable earnings with matching contribution from the employer. The implementation of the new Act awaits conclusion of a pending court case.
National Hospital Insurance Fund (NHIF) contributions
An employer has an obligation to deduct and remit NHIF contributions on a monthly basis.
NHIF is payable by the employee at graduated bands, up to a maximum of KES 1,700 per month. The maximum contribution is reached at a salary level of KES 100,000 per month. There is no corresponding employer contribution.
Every person who carries on a business in Kenya is required to apply for a business permit from the relevant local authority. The business permit is usually based on the size of one’s business and is renewable on an annual basis.
The tourism levy is payable to the Tourism Fund by establishments dealing in tourism activities and services as listed in the Tourism Act at a rate of 2% of turnover.
National Industrial Training Levy (NITA) contributions
All employers are required to pay to the Directorate of Industrial Training a monthly levy of KES 50 per employee. The only exemption is for employers remitting the tourism levy.
Railway development levy (RDL)
The RDL is now payable on all imports into the country at 2% (up from 1.5%) of the customs value of the goods. However, the rate will still apply at 1.5% for (1) raw materials and intermediate products imported by approved manufacturers and (2) inputs for the construction of houses under the affordable housing scheme approved by the government.
The RDL was implemented to provide funds for the construction of a standard gauge railway track.
Import declaration fees (IDF)
The IDF is now payable on all imports into the country at 3.5% (up from 2%) of the customs value of the goods. However, the Finance Act 2019 has reduced the rate on raw materials and intermediate goods from 2% to 1.5% for; (1) raw materials and intermediate products imported by approved manufacturers and (2) inputs for the construction of houses under the affordable housing scheme approved by the government.
These changes are also meant to encourage local manufacturing and affordable housing.
Advance tax on motor vehicles
Advance tax is payable at varying annual rates depending on the motor vehicles and is creditable against any CIT payable for the year.
Fringe benefit tax (FBT)
The FBT is payable by an employer on interest-free or low-interest loans granted to employees, company directors, and their relatives. FBT is due, whether the employer is exempted from tax or not, at the resident CIT rate of 30%. The benefit is the difference between actual interest charged and the interest computed using the Commissioner's prescribed rate published quarterly. The directors and employees are not personally taxed on the benefit.
Betting, lottery, and gaming taxes
The Finance Act 2019 introduced a 20% excise duty on the amounts wagered or staked in betting activities.
Furthermore, under the Betting, Lotteries and gaming act there is an additional turnover tax on lottery and gaming at 15%.
Local government rent and rates
Rent and rates are levied annually on properties in Kenya, and the rateable value that is payable to the county government shall vary in each county based on various forms of ratings, such as area rate, agricultural rental value, or site value.