Republic of Kenya

Kenya’s income tax structure is based on a progressive system where individuals are taxed according to their income levels. Governed by the Income Tax Act (Cap. 470) and administered by the Kenya Revenue Authority (KRA), it applies to residents and non-residents on income earned or accrued within Kenya, with residents also subject to tax on certain foreign employment income received in Kenya. Taxable income includes wages, salaries, bonuses, commissions and other employment benefits. The tax is collected through Pay As You Earn (PAYE) for salaried employees. Employers must also account for statutory deductions such as contributions to the National Social Security Fund (NSSF), the Social Health Insurance Fund (SHIF) and the Affordable Housing Levy (AHL). The current PAYE system applies graduated tax rates ranging from 10% to 35%, depending on income levels, with a monthly personal relief available to resident taxpayers. While the country offers various tax reliefs and exemptions aimed at reducing the overall tax burden for eligible individuals, non-residents are not eligible for personal reliefs.

Payroll taxes apply to all forms of employment income, including wages, bonuses, allowances and certain non-cash benefits like housing and company vehicles. The main components of payroll taxes include PAYE (which is an income tax deducted at source from employees’ earnings), NSSF contributions for retirement benefits, SHIF contributions for healthcare coverage and the Affordable Housing Levy (AHL). Employers are required to deduct PAYE from employees’ salaries and remit it to the KRA. Under the NSSF Act No. 45 of 2013, both employers and employees must contribute 6% of the employee’s pensionable earnings, subject to the statutory tiered system with an upper earnings limit of KES108,000 per month to the NSSF. This results in a maximum contribution of KES 6,480 each by the employer and employee. The AHL, introduced under the Affordable Housing Act, 2024 to support the government’s affordable housing initiative, requires contributions of 1.5% of the employee’s gross monthly salary by the employee and a matching 1.5% by the employer. Under the Social Health Insurance Act, 2023, employees contribute 2.75% of their gross salary to the SHIF, with a minimum monthly contribution of KES 300 and no upper limit. Employers are responsible for deducting and remitting these contributions on behalf of employees. Employers may also be required to contribute to other statutory schemes, such as the National Industrial Training Authority (NITA) levy, where applicable.

The Kenyan income tax year aligns with the calendar year, running from 1 January to 31 December. Employers must report and remit PAYE deductions, alongside contributions for the NSSF, SHIF and the AHL by the 9th day of the month following payroll via the iTax portal. Employers must file a monthly PAYE return (P10) summarising total earnings and PAYE withheld for employees. Employers must also provide each employee with a P9A form detailing their earnings and PAYE deductions, typically by 31 January of the following year. Employers may also be required to submit annual employer returns (e.g. IT2C) in accordance with KRA requirements.

Employers and payroll providers are required to maintain accurate payroll records, including payslips, tax deduction certificates (P9 forms), payment receipts and statutory return submissions, for a minimum of five years. These records must be available for inspection by the KRA or relevant regulatory bodies. Compliance includes timely remittance of PAYE, NSSF, SHIF and AHL contributions, as well as accurate filing of monthly and annual returns. Failure to comply may result in penalties such as fines, interest on late payments and legal action. For example, late PAYE filing may attract a penalty of 25% of the tax due or KES 10,000 (whichever is higher), while late payment typically incurs a 5% penalty plus interest of approximately 1% per month on the outstanding amount. Proper record-keeping not only supports regulatory compliance while enhancing transparency, but also helps minimise payroll errors, and protects both employers and employees in the event of disputes.