Withholding Tax Returns In Kenya 2021: How To File And Current Rates

How To File Withholding Tax Returns In Kenya 2021… Are you looking for a way on How To File Withholding Tax Returns In Kenya? If yes, then this informative article is for you. You will be given detailed information on How To File Withholding Tax Returns In Kenya, Requirements, Rates, And More.

The Kenyan Income Tax Act requires every income payer to deduct regular tax from income due for collection by the receivers. All the tax collected is then remitted to the Kenya Revenue Authority (KRA) in accordance with the impending state jurisdictions.

Kenya Revenue Authority is an agency of the Government of Kenya that is mandated with the responsibility of assessing, collecting, and accounting for all revenues due to the government, according to the Kenyan laws. The agency introduced the iTax system a few years ago to enable the taxpayers to carry out the transactions online without visiting the KRA offices.

What Is Withholding Tax?

Withholding tax, alternatively called retention tax, is a standard income tax paid to the state by the income payer in place of the income receiver. In simple terms, this tax is deducted or withheld from the recipient’s income before its disbursement. Besides employment tax, some jurisdictions levy withholding tax on payments of dividends and interest.

KRA withholding tax on interest income payments is usually fixed. The process of declaring withholding tax on employment income depends on the final tax liability as well as the government and employee.

There are two parties involved, the withholder and withholdee. The Withholder is the person who is making payment and withholds some money to remit to the taxman, while the withholder is the recipient of the income being withheld.

Kenya Revenue Authority expects to receive all the withheld income taxes before the end of the 20th day of the consequent month. The annual withholding tax return should be filed with KRA, in which all the payments made in the prior year are summarized.

Requirements For Filing Withholding Tax Returns On iTax

iTax is a unique system that has enhanced tax obligation while making it a friendlier experience to the taxpayers. Here are some of the requirements that a withholder should meet before filing the tax returns.

  • Withholding tax checklist
  • Update your taxpayer obligations to include withholding tax on KRA iTax systems.
  • Register the employer company with iTax.
  • Have the tax pin of the withholder

How To File Withholding Tax Returns

The tax return exercise should take about 5 minutes in preparation and up to half an hour of queue time. Below is a helpful guide on how to file a withholding tax return.

  • Access the KRA iTax portal
  • Use a combination of your company PIN Number and secret Password to access the systems.
  • After you have logged in, proceed to the “Payments” tab.
  • Select “Payment registration.” Do not click on the “Return” tab.
  • The system will avail an “e-Payment registration form” pre-filled with your company information.
  • Fill in the “Tax Head” by clicking the drop-down menu and selecting “Income Tax” from the list. The company is reporting another person’s tax; hence it is called income tax. Also, verify that “(0105) Income Tax – Withholding” is the “Tax Sub Head.”
  • Choose between two options available to return withholding tax. First, using Excel, which is recommended when filing returns for multiple consultants to shun away from WebForms filled one at a time. Second, you can opt to stick with independent WebForms.
  • The “Excel upload” option requires one to download and fill an excel sheet which you then save, validate, and upload through iTax using the upload button.
  • For the “Web Form” option, proceed to choose the nature of the transaction from a drop-down list provided. Use the table provided below to establish relevant withholding tax rates.
  • Fill the withholdee Pin Number, and the iTax system will auto-generate their information, including names, email, and addresses.
  • Finally, enter the “Gross Amount” you intend to pay for them and let the system do the rest.
  • Click on the button “Add” to include the list of other similar transactions.
  • Continue adding new lines until you exhaust all the suppliers or withholdee in your list of withheld income.
  • Pick the “Mode of Payment” together with “Receiving Bank Name.”
  • Click submit to finish returning your withholding tax.

How To Get Withholding Tax Certificate

The system generates a payment slip. You can download and print the certificate and present it at any of the appointed KRA banks to pay the tax due. Alternatively, you can also pay via Mpesa using the KRA Pay bill Number 572572. The Account Number is the Payment Registration number quoted at the top right corner of the generated payment slip.

When you successfully remit the deducted amount to KRA, you will receive the Withholding Certificate in the email you registered with on iTax. It is important to note that withholding tax is not a final tax. You are required to declare the income and the withholding tax certificates upon filing individual tax returns and pay any tax due.

KRA Withholding Tax Rates

The percentage deducted varies between incomes and is dependent on whether you are a resident or non-resident. Below is a comprehensive list of rates to help you calculate withholding tax. The table is handy for all employers and other income administrators required to exercise tax compliance.

What Is Exempt From Withholding Tax?

There are certain incomes that are exempted from the remittance of withholding tax. These include:

  • Dividends received by a company resident in Kenya from a local subsidiary or associated company in which it controls (directly or indirectly) 12.5% or more of the voting power.
  • Marketing commissions and residue audit fees paid to foreign agents in respect of export of flowers, fruits, and vegetables.
  • Interest payments to banks and insurance companies.
  • Payments made to tax-exempt bodies.
  • Local management and professional fees whose aggregate is below Ksh 24,000 in a month.
  • Air travel commissions paid by local air operators to overseas agents.

What Is The Penalty For Late Filing?

The Kenya Revenue Authority expects all the withholders to remit all deductions and withholdings accrued from suppliers before the ending of the 20th day in the upcoming month. Late payments of withholding tax attract overwhelming penalties, which stretch to thousands of shillings.

Currently, KRA charges a penalty of 20,000 or 5 percent of the payable fee, whichever is higher of the two. The withholder must pay all withholding tax on behalf of the supplier in cases of forgetfulness when declaring withholding tax or failure to comply with the Withholding Tax Act.

Calculate Withholding Tax On Invoice In Kenya

When a taxpayer (trader) supplies and invoices an appointed withholding VAT Agent, the payment for supply is made less VAT charged or that which ought to have been charged. In Kenya, the agents deduct 2% of the VAT and remit it to KRA. The remaining balance of 14% is paid to the supplier.

In this case, the supplier has a lower tax burden since 2% of the VAT due has already been remitted to KRA on their behalf. Once the 2% withholding VAT is remitted via the iTax portal, the acknowledgment receipt or certificate is sent to the supplier. It is important to note that the withholding tax on the invoice should be remitted to KRA within 14 days of deducting the VAT.

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