Kenya: Summary of Tax System, July 1977
|Tax||Nature of Tax||Exemptions and Deductions||Rates|
|1. Taxes on net income and profits|
|1.1 Taxes on companies, corporations, and enterprises|
Income Tax Act, 1973 (No. 16 of 1973); the 1974 Finance Bill
|Tax is charged on income accruing in the Partner States of the East African Community (EAC) or, for nonresidents, on income accrued in Kenya.||Incomes of specified agricultural produce boards, certain cooperatives, approved pension schemes and provident funds, all EAC corporations, etc., are exempt.|
Income deriving from interest on government tax reserve certificates and on specified loans to government and public authorities, etc., is exempt, as are dividends from companies of which the recipient controls more than 12.5 per cent of the voting stock.
Annual depreciation allowances as per cent of written down value are as follows: buildings, 2.5 per cent (hotels, 4 per cent); machinery, 12.5 per cent; mining operations, 10 per cent of the capital investment; agricultural land improvements, 20 per cent; agricultural machinery, 37½ per cent. In addition to the annual allowances, an initial “Investment deduction” of 20 per cent is granted for new investment in buildings (including hotels) and equipment outside the municipalities of Nairobi and Mombasa.
|Resident companies, 45 per cent. The tax rate is 27.5 per cent for income from mining of specified materials for the first four years during which a company is liable to tax. The rate for life insurance business of resident insurance companies is 40 per cent. For nonresident companies the rate is 52.5 per cent.|
Dividend and interest payments to residents are subject to withholding tax at a rate of 15 per cent and 12.5 per cent, respectively, which is credited against tax payable.
Payments to nonresidents are taxed at the following rates:
|(In per cent)|
|Management or professional fees||20.0|
|In ascertaining total income, all expenditure incurred wholly and exclusively in the production of income is deductible, including, inter alia, pre-production business expenditures, capital expenditure on farm land for the purpose of preventing soil erosion or for clearing and planting permanent or semipermanent crops, and interest on money employed in the production of income.||Interest||12.5|
|Resident companies are entitled to relief by way of tax credits for taxes paid to other EAC states on income derived from that Partner State.|
|1.2 Taxes on individuals Income Tax Act, 1973 (No. 16 of 1973); the 1974 Finance Bill||Tax is charged on income accruing in the EAC Partner States, or, for nonresidents, on income accrued in Kenya.|
The income of a married woman living with her husband is deemed to be her husband’s income for tax purposes.
Losses can be offset against other sources of income and can be carried forward indefinitely.
A pay-as-you-earn (PAYE) system is in operation for employees.
|The President of Kenya is exempted from taxes on his salary, etc., as are allowances of Members of Parliament.|
Interest on post office savings bank deposits and interest on tax reserve certificates and on specified government securities held by nonresidents are exempt.
Interest on amounts not exceeding KSh 200,000 borrowed for the purchase or improvement of owner-occupied housing may be deducted.
In ascertaining total income, all expenditure incurred wholly and exclusively in the production of income is deductible, including inter alia: capital expenditure on farm land for the purpose of preventing soil erosion or for clearing and planting permanent or semipermanent crops; interest on money employed in the production of income; for professionals, a housing deduction equal to 15 per cent of the gains or profits from the profession or KSh 14,000, whichever is less.
|Taxable Income||(In per cent)|
|On the first KSh 24,000||10|
|On the next KSh 24,000||15|
|On the next KSh 24,000||25|
|On the next KSh 24,000||35|
|On the next KSh 24,000||45|
|On the next KSh 24,000||50|
|On the next KSh 48,000||60|
|On income in excess of KSh 180,000||70|
|Dividends and interest payments to resident individuals are subject to withholding tax at a rate of 15 per cent and 12.5 per cent, respectively, which is credited against tax payable. Tax on payments to nonresidents:|
|Personal reliefs, which are set off against tax payable, are as follows: (a) “family relief” of KSh 1,680 for any married taxpayer; (b) “single relief of KSh 600; (c) “special single relief” of KSh 720 per single person with children; (d) maximum amount that can be claimed as insurance relief is KSh 480.||(In per cent)|
|Management or professional fees||20|
|Residents are entitled to relief by way of tax credits for taxes paid to other EAC states on income derived from that Partner State.|
Income in kind or “perquisites” provided by employers are included in taxable income.
|1.3 Capital gains tax||The following transfers are exempt:
||Companies are taxed at the normal corporation tax rate, while individuals are taxed at their normal income tax rate up to a maximum of 35 per cent.|
|2. Social security contributions|
The National Social Security Fund Act, 1965 (No. 28 of 1965)
|Persons in the public service covered by the Pensions Act are exempt, as are members of the armed forces, police force, prison services, and National Youth Service. However, temporary staff which do not enjoy government pension benefits are covered by the social security plan.||The employer and employee contribute 5 per cent each of the salary, up to a maximum of KSh 80 per month each.|
|3. Payroll taxes (other than social security contributions)||None.|
|4. Taxes on property|
|4.1 Real estate taxes||There are no central government taxes on land and urban property.|
|4.2 Net wealth taxes||None.|
|4.3 Death and gift taxes Estate duty||Levied on dutiable estates of deceased persons. Gifts in excess of KSh 10,000 to any one donee made three years or less before the death of the deceased are included in the estate.||Exemptions include immovable property situated outside the country and bequests to the Government or for specified public purposes. Duties may be reduced in cases of quick succession. Estates under KSh 50,000 are exempt.||Rates of tax increase from 1 per cent on estates between KSh 50,000 and KSh 100,000 to 50 per cent on estates in excess of KSh 20 million.|
|4.4 Property transfer taxes||None.|
|4.5 Nonrecurrent taxes on property (e.g., capital)||None.|
|5. Taxes on goods and services|
|5.1 Sales tax|
Sales Tax Act, 1973 (No. 7 of 1973); the 1974 Finance Bill
|The sales tax is a single-stage tax levied on all manufactured goods (except those which are specifically exempted), whether locally produced or imported, and on electricity. It is collected from registered manufacturers and importers.|
Provision is made for discretionary remission of taxes on goods that are exported.
|Exemptions include animal and vegetable products, pharmaceuticals and fertilizers (but not dried vegetables, bread, and margarine), specified items of raw materials, intermediate goods, and capital goods. Sales tax is rebated on exports (and the rebate acts as a subsidy when applied to goods which have not suffered domestic sales tax). Tax can also be waived by the Minister of Finance.||10 per cent on the sale price, or in the case of imports, 10 per cent on the customs duty value plus the amount of the customs duty.|
15 per cent on wines and spirits; watches; travel goods; domestic appliances such as washing machines, refrigerators, etc.; cars; cameras, gramophones, tape recorders, etc.
The sales tax on cigarettes and tobacco is 30 per cent, levied on the value excluding excise.