Friday, 24 February 2017

Tax Planning for 2017

2017 is an election year. According to data from the World Bank and the Kenya National Bureau of Statistics, there is a 60% likelihood of a slump in economic growth during an election year in Kenya since 1990 when multiparty politics was introduced.

You can alleviate financial challenges of the election year by utilizing the following tax optimization measures which were availed via the Finance Act, 2016.

1. Be a smart landlord
The government made it easier for small sized landlords to pay tax. If you earn KShs 144,000 per year or less from residential rental property, your rental income is exempt from Income Tax.

In addition, if your residential rental income falls between KShs 144,000 and KShs 10 million per annum, the gross rental income is taxable at a flat rate of 10%. The tax is final tax.

Save on compliance costs of record keeping, periodic tax computations and payments by taking advantage of the simplified rental income regime.

2. Employees’ relief
Employees enjoy lower rates of tax from 1 January 2017.

The government expanded the personal income tax brackets by 10% and also increased the personal relief by 10% for the first time in 12 yrs.

In addition, bonuses, overtime and retirement benefits for employees earning KShs 11,180 or less per month before the bonuses, overtime or retirement benefits are exempt from income tax.

3. Invest in the youth
If you employed 10 or more university graduates as apprentices for 6-12 months in 2016, you are entitled to deduct 50% of the salaries and wages paid to the graduate apprentices from your taxable income in 2017. 

The incentive is ongoing and you can benefit from the rebate by hiring graduate apprentices in 2017.

4. Developer’s paradise!
Residential real estate developers who construct 400 or more houses in a year will pay corporate tax at a reduced rate of 15%. This is 50% of the ordinary corporate tax rate.

If you are a residential housing developer we advise that you take advantage of this incentive.

5. Reward for play
"All work and no play makes Jack a dull boy" - English Proverb
The government takes play seriously. Companies and individuals who sponsor sports activities are now entitled to deduct the sports sponsorship costs from their taxable income.

6. Gifts of love exempt from tax
There is nothing more important than a good, safe, secure home” - Rosalynn Carter, former first lady of the USA.
Transfers of property between spouses or former spouses as part of divorce or separation settlement, the immediate family or to a company where spouses or a spouse and the immediate family hold 100% shareholding are exempted from Capital Gains Tax.

This provision enhances tax optimal succession planning.  

7. Invest in EADB bonds
Diversify your portfolio by investing in bonds of the East African Development Bank (EADB). Interest therefrom is exempt from income tax.  Besides, the bank is engaged in socially impactful financing in East Africa. 

8. Say goodbye to the landlord
The mortgage interest relief on owner occupied house has been doubled from KShs 12,500 per month to KShs 25,000 per month. consequently, you can knockoff as much as KShs 100,000 from your tax liability every year by financing your home through a mortgage.

This is a good incentive to say goodbye to your landlord.

9. Be charitable
Vehicles for use in aid funded projects are now exempted from VAT. This is good news for donor funded projects.

10. Industries to invest in
Entertainment and Leisure - Goods imported for construction of recreational parks of 100 acres or more are exempt from VAT.  Previously the exemption only applied to recreational parks located in Special Economic Zones.

Agriculture - Raw materials used in the manufacture of animal feeds have been exempted from VAT. Wheat seeds are also exempted from VAT.

Tourism, Hospitality and Entertainment - Historically these industries suffer the most in an election year.  Government has taken measures to ensure that the sector survives the hard times. Museum equipment, park entry fees, tour services, service charge and film equipment are exempted from VAT.  

Clean energy - Liquid Petroleum Gas is Zero-rated. Non-electric cooking stoves as well as raw materials to make cooking stoves are exempt from VAT.

Manufacturing - Industrialization is on the radar of GOK. Supplies to enterprises operating in Special Economic Zones (SEZ) are zero-rated. Further, SEZs are allowed to sell garments and leather footwear to the local market free from VAT.     

Vehicle assembly - Locally assembled motorcycles and school buses are exempt from Excise Duty.

11. Ask for forgiveness
Taxpayers can now apply for waiver of interest on late payment of taxes in additional to waiver of penalties.

12. Interest for late refunds - unbelievable!  
Kenya Revenue Authority (KRA) is now required to pay interest on overpaid taxes not refunded to the taxpayer within 2 years at 1% per month

The above measures will help you as a taxpayer to manage your cashflow in 2017. 

Contact us for assistance:-

East African Tax Consulting
Tel. +254 722 332729

East African Tax Consulting is an Associate of Muthomi & Karanja Advocates

Wednesday, 22 February 2017

Tax Alert - Filing of VAT Returns and Invalid Tax Invoices

Kenya Revenue Authority (KRA) published a “Public Notice” on filing of VAT returns and claiming of inputs using invalid tax invoices on 16th and 17th February 2017.

KRA stated that they validated all invoices credited in the VAT returns of taxpayers from July 2016. According to the Notice, all invalid invoices not recognized by iTAX system will automatically be disallowed.

Taxpayers were advised to visit the KRA website to check whether they were affected by the validation and amend their returns to avoid tax penalties.

Invalid Input Invoices

The iTAX system is able to match and validate input VAT claimed by purchases against output VAT declared by sellers.

Input invoices are invalidated in the following circumstances:

1. A purchaser claims input tax on an improper tax invoice;
2. A purchaser claims input VAT on an invoice that is not declared by the seller;
3. The details of the invoice declared by the purchaser do not match the details declared by the seller, namely;
  • Type of purchase;
  • PIN of the seller/ Custom Entry Number;
  • Name of Supplier;
  • Invoice Date;
  • Invoice Number;
  • Description of goods; and
  • Taxable Value.  

Our recommendations

We recommend that taxpayers should visit the KRA website to check whether their PINs are affected by the validation. Download KRA List

Going forward we recommend that taxpayers should take care to claim input VAT on proper tax invoices. Proper tax invoices are generated through Electronic Tax Register (ETR) or Electronic Signature Device (ESD).

Taxpayers should also enter the correct details of the tax invoices on which input VAT is claimed.

Contact us for assistance:-

East African Tax Consulting
Tel. +254 722 332729

East African Tax Consulting is an Associate of Muthomi & Karanja Advocates.

Thursday, 27 August 2015

TAX ALERT - Tax amnesty for individual landlords!

  • The Government has granted a tax amnesty for individual landlords on their rental income.
  • Landlords are required to declare their rental incomes for the years of income 2014 and 2015, file returns and pay tax thereon by 30 June 2016 to qualify for the amnesty.
  • For 2013 and prior years of income, 100% of principal taxes, penalties and interest will be forgiven.
  • For the years of income 2014 and 2015, 100% of penalties and interest will be forgiven.
  • KRA will issue amnesty certificates for landlords who comply with terms of the amnesty.

Terms of amnesty

The government, through the Finance Bill 2015 has granted a tax amnesty for individual landlords on their rental income. To qualify for the amnesty, landlords will be required to declare their rental income, file returns online and pay principal taxes for the 2014 and 2015 years of income by the 30 June 2016.


The amnesty effectively means that a taxpayer in default can declare and pay the principal taxes for the years of income 2014 and 2015 and all other taxes on the rental income, penalties and interest will be forgiven. 

In case of unavailability of expense receipts, the taxpayer is  allowed to deduct 40% of the gross receipts as expenses. 

Note however that the amnesty has not been extended to companies.

In addition, the government has introduced simplified tax compliance for Resident landlords earning KShs 10 million or less per annum from residential properties with effect from 1 January 2016. They will pay a monthly flat rate of 10% of the gross rental income. This will be a final tax.

Further, the government has introduced a withholding tax of 12% on rental income wef 1 January 2016. The commissioner will appoint withholding tax agents. The withholding tax will be an advance tax.

Resident landlords who wish to remain under the current tax regime will be required to write to the commissioner for approval. 


The amnesty is a welcome relief for individual landlords, some of whom have failed to comply out of ignorance or the high cost of compliance. Landlords who take advantage of the amnesty will avoid the burden of principal taxes, penalties, interest and potential prosecution for tax evasion.  

We recommend that individual landlords should contact their tax agents to take advantage of the amnesty.

To contact us:

East African Tax Consulting
Mobile: +254 722 332729
Contacts: Starlings Muchiri, Samuel Karanja

Thursday, 23 April 2015

NHIF rates increased from April 2015

The National Hospital Insurance Fund (NHIF) Board gazetted new NHIF contribution rates on 6th February 2015.

The new rates take effect on 1 April 2015 and range from KShs 150 – KShs 1700 depending on the contributor’s monthly gross income.

We advise employers to amend their payroll and deduct NHIF contributions based on the new rates, beginning with the payroll for April 2015.

The deductions should be remitted to NHIF by the 9th of the subsequent month. Failure to do so attracts a penalty of five (5) times the contribution due.

Contact us in case you need more information or assistance:

East African Tax Consulting
Branton Court, Ndemi Lane (off Ngong Road)
Nairobi, Kenya

Wednesday, 18 March 2015

Tax and Regulatory Compliance for Not for Profit Organisations in Kenya

These slides summarize the Tax and Regulatory compliance requirements for NPOs/ NGOs/ PBOs in Kenya as at March 2015.

Contact us:
East African Tax Consulting
Branton Court, Ndemi Lane (off Ngong Rd)
Nairobi, Kenya

Tuesday, 3 February 2015

Tax Alert! Capital Gains Tax Guidelines

The commissioner of income tax has issued guidelines on collection and accounting for Capital Gains Tax (CGT) on land, buildings and marketable securities.

This Alert looks at some of key aspects of the guidelines and implications thereof.

East African Tax Consulting
Tel: +254 722 332729
Contacts: Starlings Muchiri, Samuel Karanja