Just How Much Tax Are You Paying?

Almost everyone in this country pays tax either in terms of Value Added Tax (VAT) or as Pay as You Earn tax, (PAYE). Pretty much every single cent earned in this country within employment is liable to tax. And also, when a common man buys any kind of a product, he or she contributes to the growth of the national revenue because he or she pays VAT.

PAYE is a method of tax deductions from employee’s salary or wages that applies to all incomes from any office or employment and it applies to weekly wages, monthly salaries, annual salaries, bonuses as well as commissions. The government actually ensures that everyone who earns salary pays this tax hence the saying, “nobody takes me seriously like the government when it comes to the paying of taxes.” This tax is a direct tax that is imposed on income derived from business, employment, rent, dividends, interests, pensions and others. Most people pay Income Tax through mode called PAYE. This is the system your employer or pension provider uses to take Income Tax and National Insurance contributions before they pay your wages or pension.

Just how much does an employee pay in terms of PAYE? Let’s use an example of an employer who earns 20,000 Kenyan shillings. The table below shows how deductions are made.

What if one earns a salary of 50000 Kenyan shillings, how much is deducted? The table below shows that.

How is Value Added Tax carried out in Kenya? According to the Kenya Revenue Authority, once one is registered, he or she is required to charge, collect and account for Value Added Tax (VAT) on his or her supplies and remit the tax to the Commissioner of Domestic Taxes. As a registered person, one is legally bound to submit online monthly returns with details of tax on goods and services charged to their customers which is known as output tax and on goods and services charged by their suppliers which is known as input tax.

There are three tax rates as specified in the schedules to the Value Added Tax Act, which are as follows; 16%: This is the general rate of tax and is applicable to most of taxable goods and taxable services, 12%: This is applicable to supplies falling under part II of the 1^st schedule of the VAT Act for instance, electrical energy and certain types of residual fuels and oils and finally 0%: This applies to certain categories of goods and services, which includes exports, agricultural inputs, pharmaceutical products, educational materials and supplies to privileged persons. The purpose of zero rating is to make the supplies cheaper as the dealers in these supplies are entitled to claim back any input tax incurred in the course of their business.

This VAT is usually transferred to almost everyone who buys any product. For instance if someone buys a product that is valued at 60 shillings, 16 percent of the amount goes to the KRA as VAT. This means that out of the 60 shillings, 9.6 shillings go to the KRA as VAT.

Let’s say someone buys a ball for his or her daughter at 70 shillings, the table below shows the tax:

The energy sector is a key to economic growth and development as well as improvement of quality of life in any given country, and the world energy demand increases tremendously each given year. The major source of energy in Kenya currently is fossil fuels, which account for about 80% of the total primary energy supply, but also hydro power and biomass are significant sources of energy too.

Currently in Kenya, petroleum accounts for about 22% of the total primary energy supply, 67% of this is consumed in the transport sector while the rest is consumed mainly in industrial processing and power generation plants. Kenya has recorded a substantially increased demand for transport fuels in both the diesel and gasoline with the total consumption of petroleum products being currently more than four billion liters and this trend is projected to increase by more than three times in line with vision 2030, which is the blue print document for economic and investment policy in Kenya. Gasoline and diesel consumption currently stands at about 900 million and 1.4 billion liters, respectively.

The gasoline tax in Kenya is about 40, 43 and 28 US cents per liter for motor gasoline super, motor gasoline regular and automotive gas oil diesel, respectively.

However, Kenyans are set to pay more for fuel as the government of Kenya plans to remove tax exemptions on petroleum products come next year where the government plans the introduction of 16 per cent value added tax (VAT) on refined oil products which will not only reduce the use of fuel but also affect economic growth due to increased costs of manufacturing, transport and provision of services. VAT on refined oil products will be part of new levies in 2016 aimed at helping Kenya comply with the East African Monetary Union Protocol indicative tax revenue target of 25 per cent of GDP. This implies that come next year, for every liter of fuel purchased, a Kenyan will be paying 16 percent of the value as tax in form of VAT.

Electricity is another form of energy that is widely used in Kenya and also a source of VAT to the Kenya Revenue Authority. For instance, power consumers in the country paid about KSh300 million more in their September bills on account of rising fuel prices, pointing to a significant jump in that month’s electricity bills that were also subject to the recent value added tax (VAT) increase.

Kenya Power gazetted an increase on the fuel cost surcharge from Sh5.07 to Sh5.43 per unit of consumption. Initially, for every unit consumed, one paid Ksh 5.07 as fuel cost but currently it is Ksh 5.43. The fuel cost charge has gone up by Sh1.09 since July, reflecting the rising prices of oil in the international markets. Power consumers in Kenya also face an increase in VAT on their power bills to 16 per cent from the previous 12 per cent, following the enactment of the new VAT Act. There is also a forex levy which has since gone up sharply from July’s 95 cents per unit to Sh1.39 in August, and this came after the shilling slid from the poor performance of the shilling against the dollar.

Generally, for every unit consumed, one pays the levies as follows:

• Fuel cost Ksh 5.43
• Forex levy Ksh 1.39
• ERC levy Ksh 0.03
• Rural Electrification levy is 5 % on the base rate
• Inflation adjustment levy 31 % per unit (Reviewed every six months)
• Fixed charge Ksh 120
• For the first 50 units consumed one pays Ksh 2 per unit.
• Additional units up to 1500 units are charged at Ksh 8.10 with the rate going up to Ksh 18.57 for units consumed above 1500.

From the above analysis on fuel, let us say you have purchased 100 units, this is how the money will be deducted;

• For fuel cost you will pay Ksh 543.00
• Forex levy will be Ksh 139.00
• ERC levy will be KSH 3.00
• For first 50 units you will pay 100.00
• For additional 50 units you will pay Ksh 405.00

In total therefore, for 100 units, you will pay a total of Ksh1190.00 out of which Ksh 685 is tax.