TAXATION OF EMPLOYMENT INCOME

overview
 The tax year for individuals runs from 1st January to
31st December.

 A resident is liable to tax on worldwide employment

income.

 A non-resident is taxable on Business income which

accrued in or is derived from Kenya.
Taxable employment income include: cont’

 Wages, salary, Leave pay, Sick pay, payment in lieu of

leave, Commissions, Housing allowance, Sitting
allowance, Medical allowance, Bonus Pay, Gratuity,
Subsistence Allowance, Traveling Allowance,
Entertainment allowance, Directors’ fees (whether the
director is resident or non-resident)

 Any amount or allowance received in respect of

employment or services rendered.S.5(2)
EMPLOYMENT TAXATION
Overview: Employee Vs Consultant

 An Employee is any holder of an appointment of office,

whether public or private for which remuneration is
payable.

 Where a person works from his own premises, in his

own way and has no obligation to any one is
considered to be self employed or a consultant.
 EMPLOYEE VS CONSULTANT
EMPLOYEE CONSULTANT
Has to work certain hours & work in a certain way Controlling the way in which the business is run

Is not allowed to sub-contract Suffering losses and enjoying profits

most or all facilities provided (e.g place of work, Dealing with tax matters (VAT, PAYE for
equipment) employees etc)

Is paid regardless of how well or poorly the work is Providing his own equipment
done.

Usually (but not always ) has only one employer Financing the business
EMPLOYMENT TAXATION
Overview: Annual Returns

 Individuals are required to file self-assessment returns

even where the only income is emoluments from
employment whose tax has been recovered through
PAYE.
Employment Benefits
Non Cash Benefits

Meals

Housing

Car benefit

Fringe benefit/low interest

Pension
Employment Benefits
Medical benefits

School fees

Passages

Owner occupied
Employment Benefits
Per-Diem
Personal relief
Insurance relief
Telephone
Furniture
Employment Benefits

Non Cash Benefits

Non cash benefit is wholly tax if the aggregate

value of non cash benefit is more than Kshs.3,000
per month or Kshs. 36,000 per annum (s.5(2)(b))

The non cash benefit is exempt from tax if less

than kes 3000 per month
 Meals
Meals provided by the employer with aggregate value of
less than Kshs 48,000 per annum per employee are not
taxable.
EMPLOYMENT TAXATION:
Benefits: Medical Expenses
 Where an employer provides free medical services to
his employees, the value of such medical services is a
non-taxable benefit of full time employees and whole
time service directors.
 This will include the following with an allowed
maximum limit of KShs 1 million:
 Directors holding more than 5% of  company’s shares
 Partners in a partner ship
 Sole proprietors
 Medical Expenses cont’
Medical benefits will be taxable on employee &
Directors:

 Where the medical Scheme is Discriminatory

 Where there is no written medical Scheme
 Where employees & Directors are paid in cash for the
medical services
EMPLOYMENT TAXATION:
Benefits: Medical Expenses

Medical insurance provided by the insurance

provider approved by the Commissioner of
Insurance and paid by the employer on behalf of a
fulltime employee shall not be subject to tax.
(S.5(4)(b)).
“Beneficiaries” means the full time employee’s
spouse and not more than 4 children whose age
shall not exceed 21 years.
EMPLOYMENT TAXATION:
Benefits: School Fees paid by the Employer
Education fees” paid by the employer for employee’s
dependants are taxable on the employee. S.5 (4) (d)
However, where the tax is borne by the employer, through
add-back in the computation(treat it it as a disallowable
expense), the benefit will not be taxable on the employee.
Free or subsidized education granted to “low income
employees” dependents by employers who are
educational institutions is a tax exempt benefit in the
employees’ hands. The employer is also not taxable on
the fees forgone.
EMPLOYMENT TAXATION:
Benefits: Passages

 Arises when an employer pays for or reimburses the cost of tickets for
passages, including leave passages for his employee and family.
 The value of the passages is a non-taxable benefit of the employee if the
employee is recruited outside Kenya, provided:
 He’s recruited solely for the purpose of serving his employer.

 He is not a citizen. S.5 (4) (a)

Where, however, such employee receives a cash sum either

periodically or in one amount which he is free to save or
spend as he chooses or for any other purposes and for the
expenditure of which he does not have to account to the
employer, the amount received is a taxable cash allowance
EMPLOYMENT TAXATION:
Benefits:

 Club subscription paid by an employer on behalf of an

employee are allowable expenses. (S.15(2)(v)).

 Amended with effect from January 2021

EMPLOYMENT TAXATION:
Benefits: Housing Benefit-S. 5 (3)
 If the employer pays rent under an agreement at arm’s length value of the
benefit:-

 Higher of 15% of total employment income ( including allowances & other

benefits (excluding the value of the house) ) , or actual cost to the employer
for employee and whole time service directors. ( Benefits will exclude housing
benefits).

 For non executive directors the benefit is the higher of 15% of total income.

 If the employer pays rent under an agreement not at arm’s length value of
the benefit is the higher of the fair market value of the premises for that year
or rent paid by employer.

 Where premises are owned by the employer the value of the benefit is the
fair market rental value.
EMPLOYMENT TAXATION:
Benefits: Housing Benefit- S. 5 (3)

 in the case of an Agricultural Employee required by the

terms of employment to reside on a plantation or farm an
amount equal to 10% of gross emoluments minus any rent
charged to the employee.
EMPLOYMENT TAXATION:
Housing Benefit- S. 5 (3)

 In calculating the housing benefits employer is

required to deduct rental charges recovered from the
employee or director.

 The amount remaining is the chargeable value to be

included in the total taxable pay.
Housing Benefit- S. 5 (3).....
 If the premises are occupied for part of the year only,
the value is 15% of employment income relative to the
period of occupation less any rental charges paid by
employee/director (Chargeable value shall be reduced
by rent paid by an employee).
 Any employer who provides other than normal
housing to an employee should consult his local
Domestic Taxes office for advice regarding the value of
such housing.
EMPLOYMENT TAXATION:
Housing Benefit- S. 5 (3)

Example:
A Manager who earns basic salary of Kshs. 50,000
per month plus other benefits (e.g. Motor Car, House
Servants etc.) amount to Kshs. 25,000/ per month is
housed by the employer.
The employer pays to the Landlord rent of Kshs.30,000
per month under an agreement made at arm’s length
with the third party.
Calculate the Housing Benefit.
.
Housing Benefit- S. 5 (3)....
Calculation for Value of Quarters
Basic Salary - Kshs. 50,000
Add: Benefits - Kshs. 25,000
Total - Kshs. 75,000
15% Value of quarters there of - Kshs. 75,000 x 15% = Kshs. 11,250.
Compare Kshs 11,250 with Kshs 30,000 being rent paid by employer
at arms length and pick the higher.

*Rent paid by the employer Kshs. 30,000/= per month is the

amount to be brought to charge and not 15% value of
quarters
EMPLOYMENT TAXATION:
Car benefit: S 5 (2B)

 Where an employee is provided with a motor vehicle

by employer, the chargeable benefit for private use
shall be the higher of the prescribed rate by the
commissioner or 2% of the initial cost of the
vehicle.
 Where a vehicle is leased, the benefit value for private
use is the higher of the prescribed rates and lease hire
costs.
EMPLOYMENT TAXATION:
Car benefit: S 5 (2B)
Example:

X employee who is employed as a Financial Controller is

provided with a car –Toyota prado (cc rating 3,500)
which was bought in December 2017 for Kshs.
5,000,000.
Car benefit: S 5 (2B) cont’
Car benefit is calculated as follows:-
- 2% x Kshs. 5,000,000 = Kshs. 100,000 per month
 Commissioner’s fixed monthly rate cc. rating 3,500 =
Kshs. 14,400

 The chargeable car benefit is therefore Kshs. 100,000

per month.
Car benefit: S 5 (2B) cont’
Where an employee has restricted use of the motor
vehicle, the Commissioner if satisfied of that fact, shall
determine a lower rate of the benefit depending on the
usage of the motor vehicle
Pooled Transport Service
Where employer provide transport services to the
employee from home to office , the benefit is not
taxable.
Where the Benefit exceeds Kshs. 3000 per month it
will be considered a taxable benefit.
Example
Eden is employed by lower kabete company ltd as a
Human resource manager at basic salary of
Kshs 400,000/= per month.
The employer has provided housing on leased
premises at a monthly rent of Shs 70,000/=
In addition the employer has provided the
following benefits:
a)Night watchman Shs 2,000
b)House servant Shs 1,500
 Example cont’
c) Toyota prado car 4500cc,the cost Shs 4,000,000
d) Water shs 500
e) Electricity Shs 1,500
f) Meals shs 3000
In the month of February 2018,the company paid him
Shs 50,000 as medical allowance, Shs 250,000 as
leave allowance & overtime allowance of Shs 50,000.
He also received a cash gift of ksh 3,000/=
For the car benefit assume the commissioner’s prescribed rate is kes 20 000
per month.
Reguired:
i) Eden Car Benefit
ii) Eden Housing Benefit
 Prescribed Rates for various Utilities
 Telephone ( landline or mobile) -30% monthly or
annual of the bills.

 Furniture-Higher of amount paid per month/yearly if

hired or 1% of the actual cost.
 Electricity( communal or from generator)-1500
monthly.
 Water(Communal or borehole)- 500 monthly
Contributions to pension schemes
Contributions to registered pension, provident and
individual retirement schemes –
Lesser of:
 30% of pensionable pay
 Kshs 240,000 or proportion for the year
 Actual contribution
 The amount contributed is shared between the employer and the employee..
 Employer ‘s pension contribution is a tax allowable expense.

 Employee rank first in claiming deductions & where employee

exhaust the amount (kes20,000 per month) the employer
contribution wont be a tax allowable expense.
Contributions to pension schemes cont…

 Contributions made by employers to registered or un-

registered funds are not chargeable to tax on the employee.
However, employees of tax exempt bodies will be taxed but
only on amounts exceeding Ksh 20,000 per month. S.5 (4) (c)

 An individual who is not a member of a registered fund and

who contributes to an individual retirement fund is
entailed to claim the contributions subject to the limits
prescribed above
Contributions to pension schemes cont…

 Investment income out of tax exempt portion of pension

contribution is tax free.
 The amounts paid employer on behalf of employee to a
registered pension Scheme is treated as a tax allowable
expense in the employer’s books of accounts.
 Insurance premiums paid by an employer to a registered
or unregistered pension fund or to individual retirement
fund, or for group life cover shall not be taxable on the
employee unless such cover confers a benefit to the
employee or his dependants.
 NSSF
 NSSF contribution are at combined rate of 12% of the
pensionable earnings . Split equally between at (6%)
 The 2013 act set an upper of 2160/= for those earning
more than 18,000 per month.
 Employee earning less than 6000 will contribute 720.
However there is a pending case on this act hence the
old rates of 10% of monthly income to a maximum of
400 per month are still applicable.(Half is paid by the
employer.)
EMPLOYMENT TAXATION:
Per diem
 per diem refers to payments in respect of subsistence,
travelling, entertainment and other allowances made
by an employer to his employee while the employee is
on official duties outside his usual station of work and
which represent a reimbursement.
 The first Kshs.2,000 per day is considered a
reimbursement and is not taxable.
 Any amount in excess of Kshs.2,000 per day must be
supported with arms length vouchers S.5 (2) (a) (ii)
Per diem Cont……
For the purposes of satisfying the Commissioner that
the amounts paid are reimbursements of costs
incurred by the employee, an employer shall maintain
a documented policy on the management of per diem

The policy shall include information relating to:

 The rates applicable for different cadres of employees
to whom per diem may be payable.
EMPLOYMENT TAXATION:
Per diem
 The rates applicable to different geographical zones or
localities within the country.
 The rates applicable where duties involve overseas
travel provided that where different rates apply, these
are to be clearly stated.
 A justification for the rates used in relation to among
other things, the cost of living.
 The procedure of accounting for per diem.
EMPLOYMENT TAXATION:
Per diem
The Commissioner may, at any time where he deems
appropriate, require an employer to furnish him with
documentary proof of travel outside the work station
by his employee and such proof may include:
-motor vehicle work tickets.
- bus or air tickets.
-passport and immigration entries.
-imprest accounting documentation.
PERDIEM…..
 Employers may if they deem it appropriate, seek the
Commissioner's opinion regarding the admissibility of
proposed per diem scales prior to or after payment.

 Tax due on per diem is to be recovered in the payroll

month relating to the payment and remitted in
accordance with PAYE procedures
EMPLOYMENT TAXATION:
Tax Free Remuneration

 There are certain instances when an employer wishes

to pay his employees salaries negotiated net of tax.

 In such circumstances the employer bears the burden

of tax on behalf of such employees.

 The tax so paid by the employer for the employee

becomes a benefit chargeable to tax
EMPLOYMENT TAXATION:
low interest loan/Fringe Benefit

 When employer provides loan to an employee and

charges interest which is below the prescribed rate of
interest, then the difference between the prescribed
rate and employer's loan rate is a benefit from
employment chargeable to tax on the employee.
 The benefit is computed as the difference between the
interest charged by employer and prescribed rate of
interest.
 EMPLOYMENT TAXATION:
Interest free or low interest loan

i) Low Interest Rate Benefit

 Employees are taxed on low interest rate benefit in
respect of loans provided by the employer on or before
11th June, 1998 .
 The low interest benefit chargeable on the employees
is calculated as the difference between interest
charged to the employee and the prescribed rate of
interest, or such interest rate based on the Market
Lending Rates prescribed by the Commissioner;
whichever is lower
EMPLOYMENT TAXATION:
Interest free or low interest loan
Example
- Loan provided by employer - KShs.1,500,000
- Employer's Loan Interest Rate - NIL (interest free)
- Prescribed Rate of Interest - 2 %
Calculation of Low Interest benefit:
- Low Interest Benefit is (2%-NIL=2%): Kshs 1,500,000 x
2%= Kshs.30,000 per annum i.e. Kshs.2,500 per month
EMPLOYMENT TAXATION:
Fringe Benefit
ii) Fringe Benefit Tax
 It is payable by the employers commencing on the 12th
June, 1998 in respect of loan provided to an employee,
director or their relatives at an interest rate lower than
the market interest rate for loans provided after 11th
June, 1998 or loan provided on or before 11th June, 1998
whose terms and conditions have changed after 11th
June, 1998.
EMPLOYMENT TAXATION:
Fringe Benefit

Example
Employer's loan amount - KShs.2,100,000
- Interest charged to employee - NIL
- Market Interest rate for the month - 2%
Calculation of Fringe Benefit Tax:-

-Fringe Benefit is (2% - NIL = 2%) Kshs.2,100,000 x

2%
= Kshs.42,000 per annum i.e. Kshs.3,500 per month.

Fringe Benefit tax payable by employer is Kshs. 3,500

x 30% = Kshs.1050/- (for the month)
EMPLOYMENT TAXATION:
Fringe Benefit
NOTE:
 Fringe benefit is taxable at corporation rate of tax of
30% of the determined value of the benefit.

 It is payable on or before the 10th day of the

following month ,employers will therefore pool
together all the Fringe benefits for the employees in
each month.
Fringe Benefit Cont…..

 Fringe benefit tax is payable even where corporation

tax is not due by the employer in question.
Person with Diasabilities
First 150,000 pm is tax exempt
Personal care & home care expenses up to 50,000 per
month are allowable
Must apply to commissioner and must be registered
with council of persons with disability
Commissioner gives exemption certificate varied for 5
years.
EMPLOYMENT TAXATION:
Home Ownership Savings Plan (HOSP)

The 2020 finance Act removed this benefit by

amending income tax Act section 22(c)
OWNER OCCUPIED INTEREST – SEC 15(3)(B)

 A Mortgage relief deduction of up to Kes 300,000 is

available to residential house owners. Provided that
the taxpayer occupies the property.

 It is available for either purchase or improvement of

the premises.

 No claim in respect of more than one residence.

EMPLOYMENT TAXATION:
Owner occupied interest S15(3) (b)
 This deduction is available when the mortgage interest
is from qualifying financial institutions which include:
Banks, Building societies, National housing
corporations and insurance companies.
 NB: Saccos are not among the qualifying institution
EMPLOYMENT TAXATION:
Personal Reliefs
Monthly Personal Relief – Kshs. 2,400
 A resident individual with taxable income is entitled to a
personal relief of Kshs. 2,400 per month (i.e. Kshs.28,800/
per annum).
 Is applied as a credit against the tax liability.
 Its a uniform relief and employers are advised to
automatically grant personal relief to all employees.

 Individuals serving several employers qualify for personal

relief from only one employer (i.e., main employment).
EMPLOYMENT TAXATION:
Insurance Relief
A resident individual is entitled to insurance relief at the
rate of 15% of premiums paid subject to maximum relief
amount of Kshs. 5,000 per month (or Kshs. 60,000 per
annum).
Only applicable to:
 life ,
 Education - a maturity period of at least 10 years.
 health Policies.

If the policy is surrendered before its maturity all the relief
granted to the policy holder is repayable to KRA. (S.31)
EMPLOYMENT TAXATION:
Insurance Relief
Example:
An employee X has furnished a Life Assurance Policy
Certificate showing annual premiums payable of Kshs.
48,000.
The insurance relief =
Kshs. 48,000 x 15% = 7,200 per annum.

i.e. 600 per month.

GROUP INSURANCE COVER
 Premiums paid by the employer for group life policy
are not taxable benefits on the employees unless such
a cover confers a benefit on an employee.

 An amount paid to an insurance company by an

employer for the cover of an employee where there is
no group insurance policy scheme is taxable.
 GRATUITY
Gratuity paid into retirement schemes registered by the
Commissioner subject to limit of Kshs. 240,000 p.a is not
taxable
EXEMPTION OF BONUSES, OVERTIME ALLOWANCE & RETIREMENT
BENEFITS

The enactment of 2020 finance Act removed

this benefit.
Hence payment of bonuses, overtime allowances
&retirement benefits of employees whose salary
does not exceed the lowest taxable blacket no
longer applicable.
EMPLOYMENT TAXATION:
lump sum payments (Gratity,Bonus,service payments)
 Employment income is assessable on accrual basis;
that is, over the period it has been earned and become
due for payment.
 The time the income is received is, therefore,
immaterial.
 Where an amount is received in respect of
employment or a service rendered in a year of income
different from the year of accrual, such income is
deemed to be income of the year of accrual.
lump sum payments Cont…
However Section 5(2)(a)(i)states that where the year of
accrual is earlier than 4 years prior to the year of
receipt, the income is to be treated as that of year of
income which expired 5 years prior to the year in
which the income is received or prior to the year of
income in which employment ceased.
EMPLOYMENT TAXATION :
lump sum payments (Gratity,Bonus,service payments)

 The service gratuity amount is to be spread backwards

and taxed together with income earned in the relevant
years.
 Notice pay is assessable in the period immediately
after date of leaving employment.
 Pay in lieu of leave should be taxed in the year to
which the leave days relate.
Example:
 Mr. Peter Bakari left employment in 2006 after 30 years
of service and was paid service gratuity of KShs.
660,000. He was also paid KShs 25,000 relating to 2002
accrued leave days.
 The amounts due will be taxed as follows:
►2005 22,000
►2004 22,000
►2003 22,000
►2002 22,000 + 25,000
►2001 22,000 + 550,000
EMPLOYMENT TAXATION:
Compensation for Termination of Employment
i) Where the contract is for a specified term.

 Where the contract is for a specified term, amount

received as compensation on termination of contract
shall be deemed to have accrued evenly and assessed
over the unexpired period.
Example: specified term
A contract for five years is terminated on 31/12/2014 after
it has run for 3 years. Compensation of Kshs.1,100,000
is paid.
The amount will be spread evenly and assessed in the
remaining period of 2 years as follows:-
Year Taxable Amount (Kshs.)
2015 - 550,000
2016 - 550,000
EMPLOYMENT TAXATION:
Compensation for Termination of Employment

ii) contract for an unspecified term & provides for

terminal payment
In this case, the compensation is assumed to
accrue evenly over the period following
termination at the rate per annum as earned just
before termination until the amount is fully
exhausted.
unspecified term & provides for terminal payment
Example
Mr. Radiro was employed on a contract for unspecified period
providing for compensation. His services were terminated in
2011 when his salary was Shs 88,000 per annum. He was paid
Shs 200,000 as compensation for loss of employment.

He will be assessed as follows:-

2012 - Shs 88,000
2013 -Shs 88,000
2014 - Shs 24,000
Total Incomes Shs 200,000
Assignment
 Gratuity vs Pension
Wife’s Income
Under section 45 wife income is considered as the
income of the husband.

Hence the wife income must be added to husband’s to

ascertain his total income.
Wife’s Income:Exceptions
 If wife’s income from employment or services rendered
is taxed separately at wife’s income tax rate

 If wife’s income is professional income eg from

medical,Dental,Legal,Accoutants,Engineers etc

 If her income not derived from partenership,or a

company owned by or voting power of 12.5% by the
husband.
When Married woman’s income is not deemed to
be Husband’s Income
They are separated
She is a resident person but her husband is non
resident
She opts to file tax returns separately Wef from
1/1/2006
In Summary:
Tax free employment benefits

Non Discriminatory medical services and medical

insurance for full time employees.
Expatriates passages-Home travels expenses paid by
the employer

Educational fees paid for employee’s dependants and

relatives provided that such amounts are disallowed on
the employer’s tax computations and tax is paid
thereon
In Summary:
Tax free employment benefits

First Ksh 150,000 per month for the disabled

Full pensions paid to senior citizens (over 65 years)
Monthly pension withdrawals not exceeding Ksh
15,000
Employer canteen meals not exceeding Ksh 4,000 per
month (Ksh 48,000 per annum
In Summary:
Tax free employment benefits
Amounts paid by employer as contributions to
pensions and provident funds schemes, but excludes
employees serving tax exempt employers

Fringe benefit tax

Benefits whose accumulative value does not exceed
Shs 3,000 per month
Monthly Pay slip
Every employer should provide each employee on
payment of remuneration with a written statement
called payslip every month showing:

Monthly Pay
PAYE tax deducted.
Payment of tax

Any tax liability other than PAYE is based on self-

assessment, and must be paid by 30 April following the
year of income to which the liability relates.
An individual (other than one whose total taxable income
has been subjected to tax at source) whose tax liability
exceeds KES 40,000 per annum is required to pay four
instalment taxes by 20 April, 20 June, 20 September, and
20 December.
The instalment tax payable on each due date is 25% of the
lower of 110% of tax assessed in the prior year or the
taxpayer's estimate of the current year's tax liability.
Tax Deduction Card (P.9)
P. 9 form is form prepared by the employer to every
employee liable to tax. It shows gross pay and all the
benefits, chargeable monthly income,personal relief,
paye for every month throughout the calendar year.
EMPLOYMENT TAXATION
Audit Procedure

 KRA may send officers to employers’ paying points

during the year to check that they are operating the
scheme correctly and to give guidance to employers if
they are in difficulties

 Any such officer will produce a signed authority

Employers will be expected to make all records
relating to P.A.Y.E. operation available for inspection.
EMPLOYMENT TAXATION
Audit Procedure
The audit process will include, a check that:
 The employer has brought into the payroll all the
employee's emoluments, cash allowances and benefits.
 The employer has deducted correct amount of P.A.Y.E.
tax.
 The tax deducted has all been paid over to the bank.
 The pay shown in employer's salary records has
correctly been transferred to the Tax Deduction Cards.
 The Tax Deduction Card has been correctly
completed.
PAYE Penalties for Non -Compliance
 Failure to deduct & account for tax from employment
emoluments- :
-25% non compliance penalty
-1% interest per month

 Failure to pay a tax balance on an individual self assessment

return (SAR) by 30th April attracts a penalty of 20% and
interest at 1% per month.
 Failure to file individual self assessment return by 30th June
of the following year attracts a penalty of 5% of the tax
balance subject to a maximum of Kshs.20,000-amended
PAYE Penalties for Non -Compliance

 Failure to apply for registration or deregistration

Ksh 100,000 for every month subject to a maximum of
Kshs.one million.
OBJECTION BY EMPLOYERS AGAINST COMMISSIONER’S DECISION

An employer may lodge an objection against

imposition of a penalty and any other decision taken
by the Commissioner within 30 days of being notified
of the penalty or the decision.
If the employer is aggrieved by the Commissioner’s
decision on the objection, he may appeal to the Tax
Appeals Tribunal within 30 days of being notified of
that decision
END OF THE MONTH PROCEDURE
 The employer should at each month-end list the names of
employees from whose pay he has deducted tax together
with the respective amount of tax. The total of this list
should agree with amount remitted by the employer as
recorded in his payment slip.

 Any error made in the original return can be corrected

through amending the original return, which can only be
done once within a period of 12 months from the date it
was first submitted. Subsequent amendments can only be
done at your KRA station.
END OF YEAR PROCEDURE
 Immediately after 31st December each year the
employer should prepare a Tax Deduction Card
(P9A/P9A (HOSP)/P9B) for each employee from
whose salary P.A.Y.E. tax was deducted at any time
during the year.
 Certified copies of Forms P9 should be distributed to
the employees representing certificate of pay and tax
for the year.
PAYE Responsibility
Employer
Employee
Computation of Income Tax from Employment Income

 Ascertaining gross income from all sources

 Deducting from gross income such amounts that may be

allowable or such income that may not be taxable

 Ascertaining net income

 Calculating gross tax using tax rates as applicable to the

particular year of income.
Computation of Income Tax from Employment Income

 Deducting from gross tax such relief that may be allowable

 Ascertaining net income tax for the year

 In case of employed persons whose tax is deducted at

source by way of PAYE the amount of tax already deducted
should be subtracted from the net income tax.

 The balance if any will be the amount still payable at the

date of assessment
BANDS INCOME Income TAX TAX ON
per per RATE % BAND
month annum Per month
First 24,000 288,000 10 2,400

Next 8,333 100,000 25 2083.25

Over 32,333 388,000 30

Question one
Mr. NK is an employee of Baraka Ltd. During the year
ended 31 December 2020, he received the following
income and benefit from employment and other sources:
1. He was provided with a fully furnished house. The cost of
the furniture was Sh. 180,000
2.The house had a fixed telephone. The average telephone
bill paid by the employer per month was Sh. 6,400
3. He controls 18% of the share capital of Baraka Ltd. The
company paid him a performance bonus of Sh. 49,000 net
of tax for the year.
Question one cont’
4. He was provided with a motor vehicle of 2100 cc
whose cost on 1 January 2015 was Sh. 840,000. On 1
October 2019, the company replaced the motor vehicle
with a new one of 2500 cc whose cost was Sh. 3,000,000.
5.The company provided him with free lunches and tea
whose total monthly cost amounted to Sh. 5,600.
6.He was out of the work station in the month of
September 2019 for 12 days for which he was paid a daily
per diem allowance of Sh.4,800.
Question one cont
7.He contributed Sh. 24,000 per month towards a registered pension scheme with the
employer contributing Sh. 20,000.
8. His other income for the year included:

 Dividend from Wells Cooperative Society Ltd Sh. 34,000 (net)

 Farming loss Sh. 60,000
 Rental income Sh. 430,000 before deducting cost of furniture amounting to Sh. 160,000

Required

i) Taxable income for Mr. NK for the year ended 31 December 2020
ii) Tax payable or refundable on the income computed in (c) (i) above