The Kenya Revenue Authority has clarified that a large number of Kenyans who receive payments after withholding tax (WHT) has been deducted mistakenly believe the deduction settles their entire tax bill. KRA has, however, explained that, in many cases, withholding tax only covers part of a taxpayer’s total income tax liability.
How Withholding Tax Works in Kenya
Under Kenya’s tax system, a client or employer deducts withholding tax at the source before releasing payment. The payer must then remit the deducted amount to KRA within five days. Once KRA receives the funds, it issues a withholding tax certificate to the taxpayer.
The certificate plays a crucial role during annual income tax return filing. It details the gross income earned, the rate applied, and the exact amount remitted to KRA on the taxpayer’s behalf.
When WHT Is Final—and When It’s Not
KRA explains that withholding tax serves as a final tax for certain income categories. These include qualifying dividends, interest income, betting and gaming winnings, rental income earned by non-residents, and payments made to non-residents without a permanent establishment in Kenya.
However, the situation differs for most professional and service-based earnings. In these cases, withholding tax functions as an advance payment rather than a final settlement. This means taxpayers may still owe additional income tax when filing their annual returns.
Professional fees, consultancy fees, management fees, contractual services, commissions, marketing and advertising services, and digital content income fall under this category. For these earnings, payers deduct WHT at 5 percent—a rate that often falls below the applicable income tax rate. As a result, many professionals and service providers must reconcile and pay the balance when submitting their returns.
What Taxpayers Should Do
To remain compliant and avoid penalties, KRA advises taxpayers to collect all withholding tax certificates issued to them throughout the year. These documents are essential when filing annual income tax returns.
Taxpayers must declare their total income, including amounts where withholding tax was already deducted. They should then claim credit for the tax previously withheld and pay any outstanding balance after reconciling their tax position.
“Many professionals receive payments with withholding tax deducted and believe their tax obligations are fully settled. We completely understand why this makes sense. The tax was deducted before you even received payment, right?” KRA stated on Monday, February 16.
Key Reminders for Annual Income Tax Returns
KRA issued the clarification just days after outlining important guidelines for individuals and businesses preparing their annual income tax returns.
In a statement released on Monday, February 11, the authority urged taxpayers to carefully review their statutory deductions, maintain proper documentation, and verify that they have declared all income accurately.
KRA also directed taxpayers to ensure their returns reflect all applicable statutory deductions, including the Housing Levy. Additionally, the authority instructed Kenyans to record their Social Health Authority (SHA) contributions accurately and confirm that the figures match official records to avoid discrepancies during system validation.
“KRA validates declared income and expenses against available records, including electronic tax invoices where applicable and withholding tax data,” KRA stated.
As the tax filing season progresses, the message from KRA remains clear: withholding tax does not automatically mean your tax obligations are complete. Filing accurate annual returns, declaring all income, and reconciling WHT credits remain essential steps for staying compliant under Kenya’s income tax laws.
The post KRA Warns Kenyans: Withholding Tax May Not Clear Your Full Income Tax Bill appeared first on Bossnana.
