Voting Closed:

Kenya’s PAYE regulations and penalties explained

This year's government budget sought to strike a balance between stakeholder expectations and dealing with external uncertainties.

In Summary

•The Kenyan government is prioritising the ease of doing business

•To this end, the government has streamlined PAYE, NHIF, and NSSF filings onto a single portal dubbed itax.

KRA Commissioner General James Mburu
KRA Commissioner General James Mburu
Image: Courtesy

The last few years have posed tough challenges to the global economy. Kenya was not spared the ravages of the COVID pandemic and is beginning to accelerate its post-pandemic recovery. However, uncertainty remains.

This year's government budget sought to strike a balance between stakeholder expectations and dealing with external uncertainties.

Despite generous fuel subsidies, inflation in Kenya is projected to reach six percent in 2022. This rise was caused by commodity price increases along with the depreciation of the Kenyan Shilling (KES.) The good news is that employment is on the rise.

Employers must now contend with new PAYE regulations. What are these regulations and how do they tie in with the ease of doing business in Kenya?

Unified Payroll return initiative

In May 2020, the government launched the unified payroll return initiative. First piloted with large and medium businesses, the government has since extended the program to include employers of all sizes. Under this initiative, employers must jointly declare their PAYE and NSSF deductions on the Kenya Revenue Authority's (KRA) itax portal. These changes were announced to streamline filing requirements and costs.

NSSF contributions result in an employer cost of 6% annually, up to a maximum amount of 200 KSH per month. A further 1.5% National Housing Development Fund (NHDF) levy is currently stuck in courts, pending resolution. Finally, employers must pay 50 KES per employee towards a National Industrial Training Levy (NITA) charge.

Thus, employers incur a cost of 6%+50 KES per employee as total payroll charges. Employees pay the same NSSF charges annually, up to a maximum of 200 KSH per month. While employees don't pay a NITA charge, they pay between 150 - 1,700 KES towards the National Hospital Insurance Fund (NHIF.)

Filing deadlines and penalties

Income tax rates in Kenya depend on an individual's residence status. Non-residents pay income on money earned within Kenya while residents pay taxes on all income, irrespective of where it was generated. The highest progressive tax bracket for residents is 30% and 37.5% for non-residents.

Individuals pay tax at source, dubbed the PAYE scheme. Employers must deduct a portion of money from employee paychecks and submit those deductions to the KRA monthly. Furthermore, employers must file a PAYE return by the ninth of the following month. The relevant PAYE form is dubbed Form P10.

Following the unified payroll initiative, employers must file PAYE and NSSF deductions together. Employers must deposit their and their employees' contributions every month by the fifteenth of the following month. While there is no NHIF employer contribution, companies are still on the hook to file employee contributions with the government.

NHIF returns must be filed by the ninth of the following month, with employers listing the amount withheld. Lastly, NITA deductions also fall under the employer's purview, with the government expecting annual filings and remittances by the ninth of the month following the end of the employer's fiscal year.

Given payroll cycles and filing deadlines, it's safe to say that Kenyan employers must prepare withholding and deduction filings well before the ninth of every month.

Non-compliance attracts heavy penalties. For instance, failing to remit or file NITA deductions attracts a penalty of 5% of the outstanding amount. The same penalty rates apply to NSSF and NHIF contributions. Furthermore, employers must make sure their returns are in the correct format, per the itax portal's requirements.

Easier to do business

The Kenyan government is prioritizing reforms that ease business operations in the country. The integration of PAYE, NSSF, and NHIF is a step in this direction. Companies can expect smooth filings in the future as further details of the system are revealed.