What are the prevailing income tax rates?
View the below table for the current individual tax bands and rates (Effective date: 1st January, 2021)
Rate of Tax
On the first Kshs 24,000 per month or Kshs 288,000 per annum
On the next Kshs 8,333 per month or Kshs 100,000 per annum
On all income amounts in excess of Kshs 32,333 or Kshs 388,000 per annum
The applicable monthly personal relief is Kshs. 2,400 per month or Kshs 28,800 per annum.
Does PAYE include earnings from casual employment?
"Casual employment" in this case refers to employment that is under one month.
Regular part-time employees and regular casual employment, where the employees are employed casually but regularly, are not considered to be casual employees.
Are employee benefits taxable?
Where an employee enjoys a benefit, advantage or facility of whatsoever nature in connection with employment or services rendered; the value of such benefit should be included in the employee's earnings and charged to tax.
Taxation of loans to employees (Fringe Benefits Tax)
Sometimes employers provide loans to their employees and charge an interest lower than the prescribed rate. This becomes a benefit to the employee, for which the employer needs to file and pay Fringe Benefit Tax.
The difference between the prescribed rate and the employer's loan rate is chargeable to tax, on the employee. The taxable value of fringe benefit tax is the difference between the market interest rate and the actual interest paid on the loan.
Ken gets a loan of Kshs. 3,000,000
Loan amount: Kshs.3, 000,000
Interest charged: 3%
Market Interest rate for the month: 9%
Fringe Benefit is (9% - 3% = 6%) = Kshs.3, 000,000 x 6% =180,000 p.a
i.e. Kshs. 15,000 per month.
Fringe Benefit tax payable by employer is Kshs. 15,000 x 30%
= Kshs. 4,500/- for the month
How are loans to employees taxed?
This is a tax on loans to employees.
When an employer provides a loan to an employee and charges interest below the prescribed rate of interest, then the difference between the prescribed rate and the employer's loan rate is a benefit from employment, that the employee should pay tax for.
This is type of tax is called Fringe Benefit Tax