KRA PAYE Calculator

Grasping the intricacies of PAYE (Pay As You Earn) in Kenya is vital for both employers and employees. This comprehensive guide delves into the essentials of PAYE calculations, deductions, and filing procedures, ensuring adherence to the Kenya Revenue Authority (KRA) guidelines.

What is PAYE?

PAYE is a taxation system where employers deduct income tax from your salary and remit it to the Kenya Revenue Authority (KRA) on your behalf. This system guarantees a consistent flow of tax revenue for the government throughout the year.

Taxable Employment Income

1. Cash Payments: All components of your salary, such as wages, bonuses, allowances, commissions, and overtime pay, are taxable.
2. Non-Cash Benefits: Benefits exceeding Ksh 3,000 per month, including car benefits, employer-provided housing, or loans with interest rates below the market rate, are subject to taxation.
3. Mileage Reimbursement: Reimbursements above the AA Kenya rates for work-related mileage are taxable income (effective July 1st, 2023).
4. Club Fees: Membership and subscription fees paid by the employer on your behalf are taxable if deemed a business expense for the employer.
5. Applies to All Earners: Everyone earning employment income in Kenya, whether resident or non-resident, is liable for PAYE.

Employer Obligations

1. PAYE Registration: Any entity paying employee emoluments (salary and benefits) must register for PAYE.
2. Tax Withholding: Employers must deduct tax from employee salaries based on the current tax tables.
3. Tax Remittance: The deducted tax must be sent to KRA by the 9th day of the following month.
4. PAYE Return Filing: Employers must file a PAYE return with KRA, detailing the tax deducted from each employee.

Calculating Taxable Income

1. Gross Salary: This is your total income before deductions.
2. Non-Taxable Benefits: Deduct the value of any non-taxable benefits from your gross salary.
3. Tax Brackets: Kenya employs a tiered tax system with rates ranging from 10% to 35% (as of July 2023). Your taxable income falls into various brackets with corresponding tax rates.
4. Allowable Deductions: Certain expenses can be deducted from your taxable income to lower your tax liability:
   • Mortgage Interest: Up to Ksh 300,000 annually for interest paid on a mortgage for your primary residence.
   • Pension Contributions: Up to Ksh 20,000 per month contributed to a registered pension scheme.
5. Tax Reliefs: These further reduce your taxable income:
   • Personal Relief: Currently Ksh 2,400 per month for residents.
   • Insurance Premiums and Post-Retirement Medical Fund Contributions: Allowances for these were introduced in 2024.

Determining Tax Payable

Apply the appropriate tax rate from the bracket your taxable income falls under to calculate the final tax amount.

Monthly Pay Bands (Ksh.)

Personal Tax Relief

• Monthly: KShs. 2,400.00
• Annual: KShs. 28,800.00

Example Calculation:

Assume your gross monthly salary is Ksh 100,000, and you contribute Ksh 10,000 to a registered pension scheme.

• Taxable Income = Ksh 100,000 – Ksh 10,000 (pension contribution) = Ksh 90,000
• According to the tax brackets, the first Ksh 24,000 falls under the 10% bracket. The remaining Ksh 66,000 falls under the 25% bracket.
• Tax = (Ksh 24,000 x 10%) + (Ksh 66,000 x 25%) = Ksh 2,400 + Ksh 16,500 = Ksh 18,900

Note: This is a simplified example. Your specific situation may involve other deductions and reliefs.

Non-Taxable Benefits under PAYE

• Meals provided by the employer (up to Ksh 4,000 per month)
• Night allowances (up to Ksh 2,000 per day)
• Medical cover provided by the employer
• Employer contributions to registered pension schemes (within limits)

Affordable Housing Levy

Both employers and employees contribute 1.5% of the employee’s gross monthly salary towards the Affordable Housing Levy. This contribution is remitted to KRA within 9 working days after the end of the month.

PAYE Return Filing Process

1. Compile a list of employees and submit it via a PAYE Return on iTax.
2. If no PAYE is due, submit a nil return.
3. Log in to iTax, select “File Return,” and upload the completed return form.
4. Receive an acknowledgment receipt upon successful filing.

PAYE Payment Procedure

1. Log in to iTax and select Payment Registration.
2. Choose Income Tax as the tax head and PAYE as the tax subhead.
3. Select the tax period and payment type.
4. Download the payment slip generated by the system.
5. Make payment via bank, M-PESA, or debit/credit card.

Penalties for Non-Compliance

• Late filing incurs a penalty of the higher of 25% of the tax due or KShs. 10,000.
• Late payment attracts a penalty of 5% of the tax due and 1% interest per month on unpaid tax.
• Failure to deduct and account for tax incurs a penalty of 25% of the tax involved or KShs. 10,000, whichever is higher.

Conclusion

Understanding the calculation and compliance requirements of PAYE is essential for both employers and employees. Adhering to these guidelines helps avoid penalties and ensures a responsible contribution to Kenya’s tax revenue.