Understanding your income tax requirements, in particular the Pay as You Earn (PAYE) system, is crucial if you work in Kenya as an employee. Employees can use the PAYE system to provide the government a percentage of their wages in the form of income tax. Frimor Safe Way Solutions shall help you examine the specifics of PAYE in Kenya, including its calculation, potential exclusions and reliefs, and the significance of compliance.
What is PAYE?
PAYE is a method of deducting income tax and National Insurance contributions directly from employees’ salary before they receive it at the end of every month. The Kenya Revenue Authority (KRA) has implemented the Pay as You Earn (PAYE) method of income taxation. It mandates that companies take income tax deductions from their workers’ paychecks and remit the money to the government on their behalf. The strategy lessens the burden on individual taxpayers while ensuring a steady influx of tax money.
PAYE calculation.
The basic wage, allowances, bonuses, and benefits are all included in the employee’s gross monthly compensation, which is used to calculate PAYE. Certain deductions, including statutory deductions (for example, contributions to the NSSF and NHIF) and personal relief, are permitted in order to calculate the taxable income.
The KRA offers tax rates and bands to help calculate the amount of tax owed. For instance, the rates as of 2021 are as follows:
- 10% for the first Ksh. 24,000 earned each month.
- 25% for the next Ksh. 24,001 to 40,000.
- 30% for the next Ksh. 40,001 to 60,000 and
- 35% for the amount above Ksh. 60,000.
Relief and Exemptions.
The PAYE system in Kenya offers a number of exemptions and reliefs. A personal relief deduction is one that can be used to lower taxable income. The annual personal relief amount is currently at Ksh 28,800.
Additional reliefs that employees are eligible for include parental, insurance, and mortgage alleviation. These tax benefits ensure that workers keep more of their hard-earned money by reducing the overall tax burden.
The significance of compliance.
Employers and employees alike must adhere to PAYE laws. Employers can satisfy their legal obligations and stay out of trouble by correctly deducting and remitting income taxes.
Employee compliance guarantees that they are making a fair contribution to the growth and provision of public services in the country. Frimor Safe Way Solutions comes in to help you maintain a good standing as a taxpayer and averts future problems with the tax authorities.
Employer Responsibilities.
Employers in Kenya are subject to specific PAYE-related obligations. Some of the obligations that they are subject to include:
- Obtaining a Personal Identification Number (PIN) from the KRA and registering with them.
- Figuring out the right amount of income tax to deduct from employee salaries.
- Submitting to the KRA the PAYE that was withheld by the ninth of the next month.
- Giving employees annual P9 forms for tax filing needs.
- Upon request, provide timely and precise data to the KRA.
Conclusion.
In order to efficiently manage their money and maintain compliance with tax laws, employees must have a solid understanding of PAYE in Kenya. People may confidently navigate the tax system by understanding how PAYE is calculated, being aware of exemptions and reliefs, and being aware of both employees’ and employers’ obligations.
Keep in mind that paying taxes is an essential component of creating a country and helps fund essential public services. You significantly contribute to Kenya’s expansion and development by meeting your PAYE requirements. Frimor safe way solutions also helps new employers understand how to handle PAYE of their new employees. We offer consultancy services as well as help companies file PAYE for their employees in the right way and on time. The companies we have worked with have managed to avoid unplanned penalties and their records are compliant.