8.1 Objectives

At the end of this chapter, the student should be able to:

appreciate the emerging trends in the Kenyan taxation system

understand the various changes that have taken place in the Kenyan taxation system

8.2 Introduction

In the previous chapter, we dealt with professional ethics in taxation. In this chapter, we look at 

emerging trends in the Kenyan taxation system. We will also look at various changes that have 

taken place in the current budget that warrant to be mentioned. These changes may have been 

pointed out in earlier chapters.

8.3 Exam Context

This area is new and has not been tested before. However, the students are expected to keep 

abreast with changes in the taxation system. They can do this by ensuring that they know the 

current year’s budget and be able to interpret various changes in the budget.

8.4 Industrial Context

Every year, the Finance Minister presents a budget as part of executing his obligation. The budget 

normally includes some changes in taxation and allowances that are important in businesses. 

The finance manager, tax consultant and owners of small businesses should be aware of these 

changes to avoid applicable penalties. 

8.5 Information, Communication and Technology

ETR: The first attempt by the Kenya Revenue Authority to incorporate technology in tax 

administration is the introduction of the Electronic Tax Register (ETR). The main role of an ETR 

is to improve VAT compliance and administration. Every person chargeable to VAT is supposed 

to install an ETR machine and issue an ETR generated tax invoice.

KRA Website: The Kenya Revenue Authority has now gone electronic. The authority’s website 

has many portals for access by the common citizen. For example, the authority gives employers 

an option of filing returns online when the employees do not exceed 10,000. Taxpayers can 

also download various forms that are needed to enable them to pay tax. Citizens can also apply 

online for PIN numbers; file VAT returns, register for turnover tax among others.

Simba system: The Simba System is a Customs automated system that the Kenya Revenue 

Authority introduced in an attempt to modernise customs operations. It enhances efficiency and tax 

collection in the Customs and Excise department. Under the Simba System, Customs authorities 

require one to be registered as a clearing agent in order to lodge documents electronically. The 

system was introduced in 2005.

8.6 Taxes: 

• Personal taxes of the physically challenged persons: The minimum taxable income 

for the physically challenged persons introduced and pegged at Kshs 150,000 per month. 

Expenditure on healthcare services and facilities for physically challenged allowable 

deduction up to Kshs. 50,000 per month.

• Reduction of tax burden on senior citizens: The Minister of Finance reduced the tax 

burden on senior citizens by increasing the exemption gap of monthly pension income from 

Kshs. 15,000 to Kshs. 25,000 of monthly, i.e. the first Kshs 25,000 of monthly pension 

income is exempted from tax, from Kshs. 15,000 that was previously exempted.

• For lumpsum withdrawals, the first Kshs. 600,000, up from Kshs. 480,000 withdrawals from 

a registered pension or individual retirement fund is exempted from tax.

• VAT: To fasten the withholding VAT claiming process, withholding agents are required to 

issue withholding VAT certificate at the point of payment. Previously, the agent was obligated 

to furnish the supplier with “acknowledgement of the payment.”

• Turnover Tax: Turnover tax of 3% has been introduced. It targets businesses with an 

annual turnover of between Kshs. 500,000 and Kshs. 5,000,000. These include individuals 

and partnerships. Turnover tax returns shall be submitted quarterly using a pay-in slip. 

The regulations also say that the payments shall be made by the 20th day of the month 

immediately following the end of the tax quarter.

8.7 Allowances: 

• Capital expenditure incurred in acquisition of an indefeasible right to use a fibre optic cable 

by a telecommunication operator granted deduction of 5% per annum.

• Allowance is granted at 25% per annum on cost of commercial buildings.

• Telecommunication equipment has been granted specific allowance at 20% per annum on 

cost.

• Qualifying cost of machinery and buildings on investment deduction has been capped to 

Kshs. 200 million. i.e. for buildings or machinery to qualify for investment deduction, their 

cost must be Kshs. 200 million or more.

• An investment deduction has been introduced on filming equipment. It has been granted at 

100%.

• A special incentive has been introduced for investment in the satellite towns adjoining 

Nairobi, Mombasa or Kisumu at 150%. This is to decongest the three cities. It is also an 

incentive to encourage regional growth.

• Expenditure on computer software is allowable at 5% per annum.

8.8 Taxpayer Education

The Kenya Revenue Authority (KRA), in its quest to modernise the Kenyan tax system, is holding 

seminars to sensitise the taxpayers on the importance of paying tax. The Kenya Revenue 

Authority also creates awareness to the taxpayers on their rights and obligations, regarding tax 

issues. The seminars are being held on a monthly basis.