Withholding Tax (WHT) is one of the most misunderstood components of Kenya’s tax system. Many individuals and businesses grapple with what it entails, who should pay, and what payments are subject to it.
As part of Kenya’s tax compliance framework, withholding tax is deducted at the source of payment and remitted to the Kenya Revenue Authority (KRA) by the payer.
This guide aims to demystify withholding tax and help Kenyans understand what payments require it, how to calculate it, and why it matters for compliance.
In this article
What Is Withholding Tax?
This Tax is a prepayment of income tax deducted at the source of payment for certain goods, services, or incomes. It ensures that tax is collected before the recipient receives their full payment. WHT applies to both residents and non-residents, although the rates may differ.
Key Characteristics:
- Mandatory Deductions: Specific transactions are legally required to deduct withholding tax.
- Not a Final Tax: For residents, it is often an advance payment that can be offset against their income tax liability.
- Final Tax for Non-Residents: For non-residents, the tax on certain incomes (e.g., royalties) is final.
How to Calculate
The calculation of this tax is straightforward:
- Identify the Applicable Rate: Check the rate for the specific payment category.
- Apply the Rate to the Gross Amount: Multiply the rate by the total payment.
- Deduct and Remit to KRA: Deduct the amount before paying the recipient and remit the tax to KRA.
Example Calculation: If a consultancy firm earns Ksh 500,000 for its services:
- Withholding Tax = 5% × 500,000 = Ksh 25,000.
- The firm receives Ksh 475,000, and Ksh 25,000 is remitted to KRA.
Conclusion.
Understanding tax doesn’t have to be daunting. By knowing what payments require tax and following the outlined steps for compliance, individuals and businesses can avoid penalties and contribute to Kenya’s revenue system. Whether you’re paying for professional services, earning dividends, or managing rental properties, this guide ensures you’re informed and confident about navigating tax in Kenya.
