Government and Policy

Comprehensive Analysis Of Taxation In Kenya: Burdens, Purpose, And Why Kenyans Need To Wake Up And Demand Better From Their Taxes

BY Steve Biko Wafula · June 14, 2023 08:06 pm

KEY POINTS

We deserve free healthcare in every aspect. We deserve better security across the country in every region. The government is well-funded to ensure this happens.

KEY TAKEAWAYS

Demand: Through this tax, the government is meant to ensure it protects the local manufacturing and production industries in a sustainable manner that will see Kenya being able to compete well with other countries and ensure a more inward flow of knowledge and wealth.

As I write this, I am very furious. Why, you may ask… I am watching the mess we call a debate in Parliament in regard to the Finance Bill 2023 and how the caliber of the debate is not only saddening but infuriating. Through my anger, I realized that many Kenyans have no idea what taxes, levies, charges, and funds we pay to the government for better services and hence, making it very difficult for us to hold the government accountable and demand better.

I realized that it is important for Kenyans to know what type of taxes, levies, etc we pay so that we can understand how the government functions and how best to hold them to account. This gave me the idea to write on the majority of the most known taxes, levies, etc as a way to start the process of educating my fellow Kenyans.

The purpose of this article is to provide Kenyans with an overview of the various taxes, levies, fees, charges, and other financial obligations imposed by the Government of Kenya on us so that we can have a better understanding of the tax issues as we debate the Finance Bill 2023. Ignorance is no defense.

By examining the nature and purpose of each tax, I, Soko Analyst, aim to shed light on the concerns raised by Kenyans regarding the perceived high tax burden. I hope, together, we can have a better conversation around the issue of taxation.

Income Tax:

Purpose: Income tax is the primary source of revenue for the government. It is levied on individuals and businesses based on their income or profits.

Example: Personal Income Tax – Individuals pay a progressive tax rate ranging from 10% to 30% based on their income levels.

Demand: Through this, we as Kenyans deserve free Education all the way to the Tertiary level. We deserve free healthcare in every aspect. We deserve better security across the country in every region. The government is well-funded to ensure this happens. But do we know this? Are we ready to demand better?

Value Added Tax (VAT):

Purpose: VAT is a consumption tax levied on the value added at each stage of the supply chain.

Example: Standard VAT – Most goods and services are subject to a standard rate of 16% VAT, which is included in their selling price.

Demand: Through this, we deserve to have the best business environment any government can give its people so that we can grow our wealth, create more jobs and ensure our children have a better future.

Excise Duty:

Purpose: Excise duty is imposed on specific goods manufactured, imported, or consumed within Kenya.

Example: Excise Duty on Alcohol and Tobacco – Alcoholic beverages and tobacco products are subject to excise duty to discourage excessive consumption.

Demand: Most times, this is referred to as the “Sin Tax” and it’s unfortunate that this sin tax has been extended to mandatory basic items like water and it is only repugnant but evil. These taxes are meant to ensure that the business environment is keen on a sustainable positive business environment and that the societies in which these businesses operate are direct beneficiaries of these businesses.

Pay As You Earn (PAYE):

Purpose: PAYE is a form of income tax deducted by employers from their employees’ salaries or wages.

Example: PAYE for Employees – Employers deduct a portion of their employees’ salaries each month and remit it to the Kenya Revenue Authority (KRA) as income tax.

Demand: Through this, the government is meant to ensure that every employee, irrespective of what sector they work in, is protected, and given the best working environment, and their retirement is guaranteed.

Corporate Tax:

Purpose: Corporate tax is levied on the profits of registered companies.

Example: Corporate Tax Rate – Companies are subject to a flat rate of 30% on their profits.

Demand: Through this, the government is meant to ensure that our businesses have the best support in every aspect to enable them to be internationally competitive.

Customs and Import Duties:

Purpose: Customs and import duties are imposed on goods imported into Kenya to protect domestic industries and regulate international trade.

Example: Import Duty on Vehicles – Motor vehicles imported into Kenya attract import duties based on their value and engine capacity.

Property Tax:

Purpose: Property tax is levied on the value of real estate properties to generate revenue for local governments.

Example: Rental Income Tax – Property owners earn rental income from their properties, which is subject to tax.

Demand: Through this tax, the government is meant to ensure that the land system and its infrastructure are well established to ensure that every Kenyan who has any property, is well protected and guarded against scammers of any kind.

Excise Duty on Fuel:

Purpose: Excise duty on fuel is imposed to generate revenue and regulate consumption patterns.

Example: Petrol Excise Duty – A specific amount per liter is charged as excise duty on petrol consumed in Kenya.

Demand: Through this, the government is meant to ensure that our environment is well protected and that our roads are well maintained and developed, especially in areas that grow food and have the opportunity to access markets.

Capital Gains Tax:

Purpose: Capital gains tax is levied on the profit made from the sale of certain assets.

Example: Capital Gains Tax on Real Estate – When selling a property, a capital gains tax is applied to the gain realized.

Demand: Through this, the government is meant to ensure that our markets and real estate run smoothly and in a manner that guarantees confidence.

Stamp Duty:

Purpose: Stamp duty is levied on various documents, including agreements, deeds, and legal instruments.

Example: Property Transfer Stamp Duty – When transferring property ownership, stamp duty is payable based on the property’s value.

Demand: Through this, the government is meant to ensure that legal processes in the transfer of ownership are managed and executed in safe, protected, and well-managed environments.

License and Permit Fees:

Purpose: License and permit fees are charges imposed on individuals or businesses to regulate specific activities.

Example: Business Permit Fee – Businesses must obtain permits, and fees vary depending on the nature and size of the business.

Demand: Through this, the government is meant to ensure the safety of the public at large when it guarantees certain individuals to have or enjoy certain rights.

Environmental Levy:

Purpose: The environmental levy is aimed at mitigating environmental pollution and promoting sustainable practices.

Example: Plastic Bag Levy – A fee is charged on the purchase of plastic bags to discourage their use and encourage eco-friendly alternatives.

Demand: Through this, the government is meant to ensure that we have a better environment and we are able to fight climate change. This is also meant to protect our water towers across the country.

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Communication Service Tax:

Purpose: A communication service tax is imposed on telecommunication services.

Example: Mobile Phone Airtime Tax

Example: Mobile Phone Airtime Tax – A percentage-based tax is charged on mobile phone airtime purchases, which contributes to government revenue.

Demand: Through this, the government is meant to ensure that Kenya is meant to have the best infrastructure for communication across the country in any region.

Road Toll Fees:

Purpose: Road toll fees are collected to fund the construction, maintenance, and improvement of roads and highways.

Example: Toll Booth Charges – Motorists are required to pay toll fees when using designated toll roads or bridges.

Demand: Though this tax is not levied, its purpose is to ensure that our roads are kept well and the government is toying with the idea of enforcing this.

National Health Insurance Fund (NHIF) Contributions:

Purpose: NHIF contributions are mandatory payments made by employees and employers to fund healthcare services for Kenyan citizens.

Example: NHIF Monthly Contributions – Both employees and employers contribute a specified percentage of the employee’s salary to the NHIF.

Demand: Through this, every Kenyan is meant to access affordable health care across all levels.

Betting and Gaming Taxes:

Purpose: Betting and gaming taxes are levied on gambling activities to generate revenue and regulate the industry.

Example: Betting Tax – Operators of betting and gaming platforms are required to pay a percentage of their gross gaming revenue as tax.

Demand: This is a Sin Tax meant to discourage betting behavior and ensure that the firms engaged in this are responsible.

Capital Markets Authority (CMA) Fees:

Purpose: CMA fees are charged to regulate and supervise the capital markets in Kenya.

Example: Listing Fees – Companies that want to list their securities on the Nairobi Securities Exchange (NSE) are required to pay listing fees.

Demand: Through this, the government is meant to ensure that the markets and the NSE are well-developed and well-regulated to ensure that investors have confidence and are well-protected.

Import Declaration Fee (IDF):

Purpose: IDF is a fee imposed on the importation of goods and serves as a regulatory measure.

Example: Import Declaration Fee – Importers are required to pay a fee based on the value of goods being imported.

Demand: This is meant to protect the local manufacturing markets.

National Social Security Fund (NSSF) Contributions:

Purpose: NSSF contributions are made by employees and employers to provide social security benefits and retirement pensions.

Example: NSSF Contributions – Both employees and employers contribute a percentage of the employee’s salary to the NSSF.

Demand: Through this, the government guarantees the retirement age of all Kenyans in the informal sector.

Education Tax:

Purpose: Education tax is imposed to fund the development and improvement of educational institutions.

Example: Higher Education Loans Board (HELB) Repayment – Graduates repay their student loans through a portion of their income as an education tax.

Demand: Through this, the government is meant to ensure that Students have access to credit for their education irrespective of their background.

Environmental Impact Assessment (EIA) Fees:

Purpose: EIA fees are charged for conducting environmental impact assessments on development projects.

Example: EIA Fee for Construction Projects – Developers must pay a fee to obtain an environmental impact assessment report for their projects.

Demand: Through this, the government is meant to have measures to ensure that our environment is well protected in a sustainable manner.

Export Levy:

Purpose: An export levy is imposed on certain goods exported from Kenya.

Example: Tea Export Levy – Tea exported from Kenya is subject to an export levy to support the tea industry and government revenue.

Demand: Through this, the government is meant to ensure that our exports meet the required international standards.

Vehicle Inspection Fees:

Purpose: Vehicle inspection fees are charged to ensure roadworthiness and compliance with safety standards.

Example: Annual Vehicle Inspection Fee – Vehicle owners must pay a fee for the mandatory annual inspection of their vehicles.

Demand: Through this, the government is meant to ensure that Kenyans buy and own cars that are roadworthy and are legally here.

I have tried to highlight a range of taxes, levies, fees, and charges imposed by the Government of Kenya on us that are common to just give us a clue on where to start having this kind of conversation with some knowledge. These financial obligations serve various purposes, including generating revenue, regulating industries, funding social welfare programs, and promoting sustainable practices. I believe through understanding the purpose and examples of these taxes will help all of us and lead us to contribute to informed discussions about the tax burden faced by Kenyans.

About Steve Biko Wafula

Steve Biko is the CEO OF Soko Directory and the founder of Hidalgo Group of Companies. Steve is currently developing his career in law, finance, entrepreneurship and digital consultancy; and has been implementing consultancy assignments for client organizations comprising of trainings besides capacity building in entrepreneurial matters. He can be reached on: +254 20 510 1124 or Email: info@sokodirectory.com