Understanding PAYE and Income Tax in Kenya
The Pay-As-You-Earn (PAYE) system is how income tax is collected from employment income in Kenya. As an employee, it’s important to understand how PAYE works and your income tax obligations. In this post, we’ll break it down for you.
What is PAYE?
PAYE is a tax collection system where employers deduct income tax from employee salaries and benefits, then remit the tax to the Kenya Revenue Authority (KRA). All employers are required to register for PAYE and make these deductions.
The PAYE tax rates are based on income tax bands set by the government each year. The more you earn, the higher percentage of tax you pay.
Taxable Income
Your taxable income is your total employment earnings minus any tax-free allowances and deductions. This includes:
- Salary, wages, bonuses, commissions, fees etc.
- Allowances like overtime, leave pay, entertainment.
- Non-cash benefits over KES 3,000/month e.g. company car.
Allowable Deductions
You can deduct certain approved expenses from your taxable income:
- Mortgage interest up to KES 300,000 per year.
- Pension contributions up to KES 20,000 per month.
- Insurance premiums on approved policies.
Tax Brackets for 2023/2024
Here are the PAYE tax brackets effective July 2023:
| Monthly Income | Annual Income | Tax Rate |
|---|---|---|
| First KES 24,000 | First KES 288,000 | 10% |
| Next KES 8,333 | Next KES 100,000 | 25% |
| Next KES 467,667 | Next KES 5,612,000 | 30% |
| Next KES 300,000 | Next KES 3,600,000 | 32.5% |
| Above KES 800,000 | Above KES 9,600,000 | 35% |
Tax Credits
You can reduce your tax liability through tax credits like:
- Personal relief of KES 2,400 per month.
- Insurance relief on premiums up to 15% or KES 60,000 per year.
Filing PAYE Returns
Employers must file monthly PAYE returns and make tax payments by the 9th of the following month. This is done online on the KRA iTax platform.
As an employee, make sure you review your payslips every month to ensure accurate PAYE deductions. You can also estimate your tax liability using KRA’s PAYE calculator.
Understanding PAYE will help you plan your payroll taxes and take advantage of all available deductions and relief.
Consult a tax expert if you need assistance.
