e [Music] on the LUN good evening everybody and welcome welcome welcome to our master class this evening as usual it's such a delight to have you all I can see a few people streaming in from the different platforms that we're streaming this master class from uh if you're on YouTube please let us know uh what you're looking forward to if you have questions indicate them on the comment section on YouTube if you're streaming in from LinkedIn as well super excited to hear about your comments and look at the questions that you already have and if you're watching from K TV kibana as well we again are super delighted to have you join us now if this is your first time interacting with us HR box Africa allow me to just spend one minute to brief brief you about who we are so we're all about people solutions that is HR software and HR services so our mission is very simple We Exist solely solely for the purpose to empower your people to do excellent work so if that is what you're all about if that's what you're looking for a partner to help you better manage your employees so this we're talking about all the way from payroll leave management software and HR services at large then we are your partner and we also have a community of HR professionals one of the things we do here is um professional development and that's why today we are so excited to collaborate with Kenya Revenue authority to take you through a master class that somebody at least some of you have been asking for so we are sure that this is going to be such an exciting exciting session we're looking forward to a presentation from the K team I'm pretty sure we cannot possibly quite cover everything there is to when it comes to m payroll tax and compliance but we have identified a few sections that at least uh we've got an interest from from you so Nixon is going to be taking us through a session and then after like we promised we'll have a live we'll have a live Q&A session so feel free to let us know all the questions we'll be looking out for the questions that you have in the different chat section so without further Ado allow me to introduce uh our main trainer for the day I'm going to read his bio so if you'll allow me let me just read his bio and then I'll invite him all right so Nixon omon is a chatter holder with CFA Institute and he's a CPA and completed Advance diploma in international taxation has worked with Kenya Revenue Authority in very offices in Tax Administration for over 15 years so you are in good hands and he's a trainer with the Kenya School of Revenue Administration and a member of the task force in the digital economy on oecd working group on BBS action one taxation of the digital economy he's also he also holds a BC degree in biomedical science and technology and a master's degrees in financial services management from the University of of southford UK wow what a bio Nixon kibana we are super super delighted to have you on board are you excited definitely excited to be amongst my countrymen always happy to be with the HR professionals thank you you know this is really not our first time interacting we we had a similar Massac some time back so we're super delighted I can tell you for a fact that you guys are in for a treat so without further Ado Nick sonami over to you thank you Billy and thanks to the great team the great HR professional uh body uh today we are just going to discuss matters employment tax I don't know whether we'll call it employer or employee but we'll be learning together and in addition to H payroll taxes we also going to delve just a bit into withholding tax because as HR professionals sometimes you get gigs you get some consultancy work to do so you need to know how to treat any other taxes that would be deducted from your your your your business so I'll go directly into the presentation feel free to uh use the chat box as I present H to raise any question and and of course at the end of this presentation again we'll have very good opportunity again to interact more through Q&A we always give CAU and I'm happy my colleague Cynthia is here if anything is not you feel is not in consonance with the law you can always raise it up so that we have a discussion around it if you have a very specific question you want to be guided legally officially we always encourage our taxpayers to write to our policy and tax division which then advises and gives you a policy decision that can even stand in a court of law so with that allow me to get into the presentation you know uh people look at an HR person in different lenses so just looking at my my my my my my chat H and my presentation uh I want to see thumbs up for those who are able to do so and and and tell me what they think and how people take them okay that your friends who knows you are a HR professional think your work is just to fire people H when you come when your mom and for those who have moms they think you're just enjoying and swimming in money I think this might be true for some of us who have their parents in the village and then the society out there when you're walking along the streets or for your friends or some people who think you knows you are a HR professional basically think that you know Society thinks that you don't do your job properly you're just there okay your employees your supervisors think we just sit and relax and for those who are employers they think as the CEO you are just in meetings you're not doing anything constructive and uh what you think you do is hiring people encouraging people that is what you aspire to do as HR professional but I know especially for government officers I don't know those who work in the private sector when I come to your office I find you with a pile of files and I think the profession in hchr is not any different from what I practice in as a tax professional as an accountant and I'm happy already receiving a question from Gilbert okay H and and I'm happy that some of those updates have been done on the P10 super uh and and when the it option will be open I think it's already open you can actually file your Returns the it1 the it1 return is now open with the Shi and all those other levies you can actually file your return I think we'll have a conversation as we continue so when we talk of pay1 you know people think pay1 is a tax on its own but p is actually a method of deducting tax you're imagining if all of us were to receive our salaries and then we remit the portion that belongs to tax it would be a very difficult tax systems to implement so that is why for ease of administration of taxation of employment income what the government has instituted as part of the law is that the payer of your salary is mandated to deduct and remit a portion of it so that portion is what we refer to as pay as you earn it is not a final tax in itself because that is why at the end of the year we are we as employees or employees under your care are then called upon to file their returns but claim any payers youan that had been deducted at the time of payment of the salaries so payers youan is actually a method of collecting tax from salaries from wages from stipend uh from you know internship allowances allowances when you are in the process of generating income from office or from employment when we talk of payers you it doesn't apply just to monthly salaries if somebody's being paid weekly is being paid monthly some people have paid annual salaries some people have paid commissions for directors in the house you get director's fees whether the person we looking at is a resident or nonresident which are explain a little bit later that income is supposed to be subjected to pay as you a portion of it is deducted and remitted as an advanced tax uh to the government when we talk of all cash monuments and all payments which you receive on account of being an employee all that should be taxable so we are looking at what an employer gives you as cash sometimes an employer might even buy for you something an employer might spend on your behalf or you might be privileged to get certain benefits because of your position as an employee a CMA a Christmas gift a Christmas vulture a vehicle a house okay a medic a medical benefit some employers are even more gracious employees get to eat at the work place of course to avoid disruption about lunch and all that all those we call them ents in form of wages in form of salaries in form of commissions director's fees director's bonuses they are all subject to this regime where the employer deducts a portion remits to the government but later you are able to claim the portion that was given to the government now coming quickly to the current situation pay is deducted on the basis similar to taxation of individual income so when you look at the way your pay slip is taxed it is exactly the same way somebody who has earned okay from business income as Absol Trader is taxed so long as that person is not under turnover tax rules which maybe one day we'll explain so if you are doing business and your turnover is more than 25 million the profits coming out of that business you are running a kiosk you are running a consultancy firm you are running a partnership and you end up sharing the profits the your taxation regime is similar to somebody who is employed and so the rates are one so long as all of us are individuals and that is what stated in the law the tax bands that we are using currently were effective from 1 of July 2023 and I'm happy that I'm speaking to H professionals who love numbers so we'll be dealing with numbers in a bit but there are also certain deductions that it's important to mention there's the social health insurance fund shift where all employees are supposed to contribute 2.75% of gross salary and the minimum is 300 then we have nssf where employee contribution is 1080 monthly and then the employer matches but we'll explain more the 1080 the rate has since changed from February 2025 we we have a more detail we'll have more details and then we have affordable housing Levy that was brought in the month of feu March 2024 at 1.5% of gross salary and the employer also matches a similar amount and the contribution is 1.5% of gross salary I think those are important and then there are certain reliefs that are also available to employees what we call a personal relief at 2,4 28800 every month and these are the B so initially we used to have a 10% a 15% a 20 a 25 and a 30 but effective 1 July 2023 there are five Burns of tax the burns reflect the categories of people on wealth whether you are on you know the the upper upper middle upper lower then you go to the lower middle and you know there's a middle middle and a lower you know that's kind of scenario is what was contemplated when the bands were arrived at so you can see the table there monthly BNS annual BNS and the rate of tax and for those who are more blessed you know the Bible tells that you know for those who much is given much is also expected and it seems the government uses this same analogy so if you are blessed and you're earning 500,000 up to 800,000 the government expect you to contribute now 32.5 if you are more blessed to be earning on a monthly basis over 800,000 the rate now goes up higher to 35% and this is in line with the taxation Principle as as given to us by some great economists Adam Smith and others that a good tax system should be Equitable so that those who have more income pay more tax those who have less pay less tax and those who are earning below 24,000 don't pay any other tax by the way so that is exactly that tax principle so just to drive the point home I've worked an example of a person who has a gross salary of 50,000 and how that person is supposed to be taxed so those who have seen the payroll systems maybe you can feed this 50 and see whether your payroll system is calculating the tax properly if your payroll system is not giving you pay of 5,845 65 which have now rounded off to point to 5,846 then you might need to review that system you know it's important also to use the rounding off you imagining TSC with the over 300,000 employees if you only round off one shilling it means at the end of the month TSC might overpay or underpay by 300,000 Shillings and that is very significant so rounding off to the two decimal points allowed this is how tax is computed for somebody who is earning a gross salary of 50,000 okay we are saying all allowances cash and noncash amount to 50,000 so we want to tax you your pay sleep and your employer told you you're not entitled to any other thing other than your salary of 50,000 so if you're earning an salary of ,000 in a month and these are monthly rates the first thing that happens you work on your gross pay just go to the the seemingly second table where we have pay information so under pay information your gross pay is 50,000 but effective December 1st 2024 with the Amendments that came with the tax law Amendment act there are certain uh contributions that have been given as a liable deductions so before you are taxed the amount is reduced to what we called taxable pay by those figures okay so we deduct 5,124 how do we arrive at 5,124 we look at how much uh nssf are you contributing later I'll take you through nssf how to calculate it but but the person a person who wants 50,000 will pay tier one and ssf for 480 and we'll also pay tier 2 andf of 2520 giving you a total of that should be 3,000 in total okay uh then uh after that we also have shift which we had explained 2.75% of your 50,000 you see 1375 and then you have the affordable housing Levy of of of of of 1.5% which gives you 750 so 1.5% of 50 is 750 and then 2.75% of 50 gives you 1375 so it reduces how much you supposed to pay and once those figures are reduced okay uh oh thank you Daniel wome is already asking a question whether the BNS were declared unconstitutional wome the high court yes said that the finance Act of 2023 was UN constitutional but there was a stay then the court of appeal finally ruled that there was nothing unconstitutional in the finance Act of 2023 and therefore it is fully operational so there is nothing unless contrary except the affordable housing Levy which was uh brought in the Employment Act in the finance Act of 2023 that's the only one that was declared unconstitutional but later it came in its own act under the affordable housing Levy act so Daniel it is fully constitutional so once you have your taxable pay at 44,8 75 you move it to the tax table just below and then you compute how much tax should this person pay so it means this deductions gives you a breather in terms of how much tax you are going to pay if these deductions were not available definitely you'll pay a higher tax because you not have the liable deductions of 5,125 you'll be taxed on the gross of 50 so how we do the tax is uh that is how the law is structured under the first schedule to the income tax act 24,000 is tax at 10% which gives you 2,400 if you only have 24,000 as your income you'll be taxed at 10% gives you 2,400 but there's usually a relief you given of 2,400 28800 in a year so that is why those who are 24,000 and Below do not pay any tax because even if they were to pay the effective tax will be zero they will pay 2,400 minus the relief that takes us to zero but this person is earning 50,000 so after removing the first 24,000 deducting it he still has some income to be taxed at a higher band so the next band you can see from this table is between 24,000 to 32333 monthly so if you deduct 32333 from 24,000 you don't deduct 241 this is part of what we did in statistics in in high school so if you deduct 24 from 32333 you end up with 8,333 so that next band which is 8,000 is taxed at 25% and you see 2,83 there's a bit of rounding off that has I've done so the balance with 12,542 because you removing or you are deducting from 448 75 you've already taxed the first 24 you've taxed the next 8,000 it means you have a 12,000 balance but when you go back to these bands the next band starts at 32,3332 to 500 that is well over 467,000 which is tax at 30% so what it means we have amount available to be taxed at 30% which is 3,7 163 then you add the totals 2400 + 2083 + 3763 you get the gross tax payable which is 8246 then you deduct the personal relief 2,400 you get the net tax payable which is 5,846 and as a HR person when you're now doing the payroll or the pay slep of this employee is earning 50 we go back to the opening of our table so this person has a gross pay of 50,000 his pay is 5,846 he's paying nssf TI one tier two total is 3,000 he's paying Shi at 1375 he's paying housing Levy 750 some employers are gracious enough they might give you an advance so Advance will appear here okay you might they might pay for you School fee it might appear here if it's to be deducted from your salary and then you have total deductions 10,000 and the net pay of this employee is 39029 Daniel you're asking a very good question taxation of circle directors commissions and the ments which band does this fall and what rate is applicable given this is secondary source of income ah good good good let me pack that and deal with people who are now more blessed who should be giving us much more more so when you look at uh the next uh this is now a person who is earning 1 million and by the way it's not a surprise to earn 1 million in Kenya some of us in Civil Service might feel 1 million okay but you know in in the private sector it's possible so this person earns gross pay of 1 million it means this person is going to pay nssf tier one and two is going to pay shift and housing Levy so uh the deductions will be 480 that is the maximum for TI one and thenf the balance will be 6% of there's a calculations which I'll show you there's 3840 we are dealing with this year so this person is already paying 4260 as nssf contributions and then the shift which we agreed is 2.75% of 1 million which is 27500 and then the housing Levy 1.5% of 1 million which is 15,000 so when you go to the second portion of the table there's the pay information gross pay is 1 million all liable deductions which is nssf Shi and housing Levy is giving us 46820 so what is supposed to be taxed is 953 180 now when you go to taxing the 95310 you see the first band same as what we looked at when dealing with a 50,000 person the next same 25% but now we have enough to take this person to band three and four so this person can be 30% he can be 32 and a half he can also be 35 so what we are doing is the next band is 467 667 at 30% he still has a lot he can still get to the 32 and a half which is 300 because the band starts from 500 to 800 so the difference in that band is 300 so you can still get that tax then when you add all that and minus from 95310 you still have a balance of 153 180 to be taxed at 35% so when you add all the taxes it gives you 295 896 you give a relief of 2,500 and the net tax payable is 29349 so those who are in charge of peral if somebody's being paid 1 million without any other reliefs other deductions other than this generic which I'm demonstrating the pay is 293 496 that is equivalent to almost 30% okay so that is the process of calculation of pay as you I think that is that is what I wanted to bring out just to try and demonstrate how it ta but nowadays it's very easy there are lot of online tools you feed the income the grocy you can go for annual rate you can look at monthly rates you can also cross check with your accounting system whether the accounting system or the payroll system is calculating the tax properly feel free to even reach out to myself the HR professionals team PE here we can always re look at your system if it's not calculating properly just to ensure that systems are calibrated as the law will require so allow me to now go pick nssf affordable housing and and and shift just for a little much more explanation so from 1 February 2025 we are contributing what is in line with phase three of the implementation of the nssf act of 2013 most of you will remember that initially there was a court issue with this implementation but that was then lifted upon appeal and therefore nssf is implementing the first implementation as contemplated in the act so effective uh last year the lower limit was from February this year the lower limit which used to operate at 7,000 has gone to 8,000 and then the maximum contribution has risen from 420 to 480 that's why you are seeing we using 480 and then the upper limit which is tier two has been increased from 36 to 72 and the contribution is now 6% so what used to happen is if you're earning 50,000 for example before February 2025 your upper limit will be 7,000 at 6% you get 420 then if you're earning 50,000 the upper limit is achieved by calculating 50,000 - 7,000 and then it is multiplied by 6% so that gives you the upper limit which we had determined earlier to be 3,6 6 is it 30 3580 or there about or 3680 so you add the two and you get the amount you're supposed to pay but the limits have now been increased so that you now pay uh 6% of the upper limit which is 8,000 that gives you 480 and then the balance of your gross pay minus 8,000 is then multiplied by a 6% to get the upper limit so the maximum contribution has actually gone up from 2160 to 3840 so when you're looking at the upper limit for example this person who is earning 1 million the the lower limit would be 6% of 8,000 which is 480 you able to see it demonstrated here then the lower limit the lower limit will be 1 million minus 8,000 which is 99 is it 999 and something and should be 982 92,000 then minus uh uh minus 8,000 okay I've already minor so that's 92,000 time 6% you'll find it's actually more than 3840 so this gives you the maximum meaning the maximum is 3840 at whatever salary and that's why you end up with 4320 I'm I here I'm told that the rate might also go up next year I don't know whether it's going to 9,000 and then we are going to 144,000 but we'll wait to get communication from that but remember it is still the implementation of the act as it is and and the other day was seeing somebody was trying to calculate with the old nssf of 200 if you had worked for 30 years how much you'll get as your pension and with the new rates how much you'll get as your pension and what I saw I'm not Ving for nssf what I saw is that the differences are so huge and I think maybe we'll come to appreciate upon retirement for those of us who are facing retirement soon maybe it might be something to consider to put more upon our retirement uh we have tax refund for employees uh our law allows us to refund employees for any tax that is overpaid or paid in paid in error that is under the tax procedures act when you look at that tax procedures act uh you are allowed to claim any excess tax paid or tax paid it may arise due due to many reasons okay uh one if you are over deducted by an employee and it might be because of a system issue or it might be by mistake or something like that you're always allowed to apply for your refund or there is a tax incentive currently I know the shift which is insurance is a deductible amount against your taxable salary but the ordinary traditional insurance premium is still given as a relief 15% of your monthly or annual premium subject to a limit of 60,000 there's also the annual tax relief okay if it's available exemptions on account of disability so anybody who is employed within the HR profession or within our care they please advise them to seek exemption certificate of course the process is handled squarely uh by the uh by the by the council the council for people who are abled differently they handle all the processes including vetting they only forward us the applications for processing which of course we do through itax and once somebody has an exemption certificate they are allowed to withdraw up to 150,000 in salaries without being taxed okay and then we have overpayment installment taxes this is for individuals for people you and me can have side hustles and if you paid any installment tax then definitely you are within your rights to request for your your your your your your overpaid tax over withholding tax can appear Advanced tax credits can also be there you pay tax in advance there are also people who have Motor Vehicles commercial heavy vehicle or heavy motor vehicle for cargo or psvs please you need to declare the income you also need to pay Advanced Tax if you have a pickup which is a commercial vehicle single single carrier single cup just know that it's a a commercial vehicle subject to Advanced Tax and that can also give rise to taxes excess tax which then you need to apply for your refund let me address Dan's question Circ directors commissions and ments which band does it fall ah good if a director is also an employee in the circle okay then that is very different because he'll be taxed like any other employee but if a director is being paid an allowance and it's good it's somewhere we'll discuss it sometimes later it's in this presentation the pair the circle for example needs to ask the director is this your secondary employment and if it is their secondary employment in their primary employment are they above 30 30 32 per 32 and a half percentage taxation if they are then the secondary employer will apply that top rate tax on the commission and The Monuments so if for example Nixon is also a director ofuru cleu CLE is the circle for K employees and many others if I'm also a director K already pays me let's say k is paying me 200,000 okay it means if I'm a director on the other side and and and and therefore I'll not be required uh I cannot be taxed by The Circle at a higher rate than what I'm already paying I'm within 30 so I'll be subject to 30% and and then if there's any kind of uh excess I'm eligible to claim the refund but it will be quite I don't know whether to say unfair if a second employer taxes you at a rate which is quite higher than what you are supposed to be subjected to for example you're within and your tax are 35 fair enough still you'll file your return and then you'll be able to get a refund for your taxes and Joseph thank you your your comment is noticed uh we'll try to save time and and and then answer the questions later but I'm happy there are also people in the team who are answering those those questions so when you want to apply for your refund and please this is a notion to many employees that the moment they file their income tax returns what we call it1 returns for individuals and they see a negative they just know that K is going to wire the money to their account no the law requires you specifically to go into the K tab under refunds menu and follow the procedure to apply for your refund the good thing the moment your return shows a credit meaning you in refund when you go to the refunds tab you can quickly pick it up and apply for the refund number two make sure that your bank account is well captured because that is the account where once the refund is processed money will be sent to upload supporting documents I've seen many cases of colleagues and friends who just apply for refund but they're not sure what cost the refund if it is because of insurance relief if it is because you are over taxed by the employer if it's because of a disability certificate exemption certificate that you did not take the employer to give you the exemption and any other C make sure you attach the necessary documentation so that our refund officers will not come back to you to ask for those documents definitely they'll still come the law require them to process the refund within a certain time frame so they'll still come back to you and ask you for supporting documents and they give you maybe 30 days if you don't provide the refund is automatically rejected so it's always important when you're applying for your refund attach the necessary documents speak to professionals speak to K and tell them I'm seeing I'm filing a negative is it because of an error from my employer is it because of shi is it because of an nssf is it because of an insurance is it because of a mortgage relief so that you attach the necessary documents for officers of course to process that refund make sure you apply for your refunds within the required time frame the tax law Amendment tax procedures Amendment Act of 2024 now gives us five years so you only have five years to claim your refund so if you go back to your Ledger and realize that in 2018 uh 2018 years you had a refund which you did not apply for then the you it's not K that refuses your your your refund it's actually the the law which BS you from claiming that kind of of refence then we have a tax amnesty now going on I know many employees many people either filed late failed to file or have side hustles that they never declared the law allows you under our tax procedures act that you can apply for your amnesty we barely have three months to go by end of June 2025 you'll be eligible to apply for the amnesty and if it is just nonfiling penalties up to December 2023 it will be automatically resolved you'll simply file find an email telling you that your amnesty has been processed so don't fear I know people get such me messages and start wondering which return is this what is wrong it's only that the system has realized you had a penalty or an interest but you did pay the principal tax you filed the return and so the penalty is automatically waved but if you have any outstanding tax or you did not pay any tax then the law or guidance from K is such that you need to pay the principal tax if you cannot pay it once then you can pay you can enter into a payment agreement with our office then it will be waved automatically but you have to clear the payments by 30th June 2025 so debts arising from 21st January 2024 are not covered in the amnesty so those ones you'll have to pay fully if you have a dispute Ono we ask you that please approach ADR if the issue is not so weighty if you wish not to visit the judicial offices go through ADR then you take advantage of the amnesty when the time is there so that has been our ring call okay but if you under audit which is ongoing you under investigation which is ongoing until the audit of the investigations are concluded you cannot claim this amnesty so maybe it might be a chance to Quicken those audits if you know in your office there's a car audit compliance check in investigations going on maybe you could facilitate the officers to Quicken the audit so that if you agree on the taxes to be paid then you have an opportunity to claim the you to claim the amnesty so that penalties and interest is completely weaved pay as I've already said is paid by 9th of the following month H failure to deduct pay there's a very heavy principle sorry for the typo there's a penalty of 25% and 10% 10,000 whichever is greater so imagine you're looking at an employer who pays 1 million as pay as you on all the employees if in any month you fail to deduct pay and account for it there's a 25% penalty which is 250,000 or 10,000 so so you'll end up paying 250,000 if you don't file a return in in time there's also 5% non late filing or nonfiling or 10% whichever is higher so the penalties are very huge but of course there's also a penalty for withholding tax there's a 10% maximum 1 million I think this has also been dealt with in the tax procedures act I think we'll explain that shortly uh I also wish to highlight on retirement benefits taxation this has also come up uh in the recent uh amendments that happened on 27th of December uh one k no longer registered any retirement benefits scheme when we talk of a retirement benefit scheme we looking at a pension fund we looking at a Provident fund we looking at an individual retirement fund an umbrella fund and all those funds provide they are registered by the retirement benefits Authority so what has happened in the new dispensation is that ear retirement benefit scheme has to be registered with retirement benefits Authority once it is registered even in the income tax act we deem that that scheme is registered and when it's registered employees get a deduction which we explained earlier similar to what we see in in nssf but in addition to nssf which is a statutory pension scheme people also go for occupational schemes they have their own pension schemes like K pension scheme people go for umbrella schemes with insurance companies or some banks okay or individual retirement schemes with insurance companies so if you contributing to those individual retirement schemes the law allows that before you are taxed just as we saw in the example with nssf the taxable pay is reduced by the actual contribution 30% of your pensionable income or their maximum which used to be 20,000 and now uh from December it has been increased to 360,000 per year which is 30,000 per month so in the example that we saw earlier if for example in this example sorry I hope it's visible if we take the 50,000 person if this person is paying n ssf of 3,000 and the person is also paying contributing to a pension scheme of 5,000 and the employer may be matches the contribution made by the employee will reduce the taxable pay so in that case instead of 44875 if the employee is contributing a 5,000 then the rate will come down okay to the taxable pay will come down to 39875 so effectively the overall tax also comes down because we know pension is actually your money that is being kept for you so that 5,000 is what is all liable but you can also calculate 30% of of pensionable pay which will be 30% of 50 that will be quite High 15 the law looks at the lower actual contribution 30% of pensionable pay or the maximum which is 20 20 or currently we are dealing with 30,000 I think I'll explain what it means the 30,000 and the 20 just shortly so the maximum amount is available for both employer and employee but the employee contribution takes presidents if you are contributing to a non-resident scheme I know some Kenyans might like the pension scheme in Panama the pension scheme in Bermuda the pension scheme in British Virgin Islands and all that those deductions will not be allowed the scheme has to be regulated by RBA registed and domiciled in Kenya and because you'll be contributing there are certain benefits when you finally retire so I don't want to dwell on this benefits uh because we are dealing more with payroll but for a pension keep paying retirees there are exemptions when they giving lsum there also exemptions when it is monthly but I'll also explain something on that shortly then if an employer is contributing on behalf of an employee so long as the amount does not exist 30,000 per month employee and employer combined then it is not a benefit to the employee so if Nixon is earning 100,000 and K is contributing 10% and Nixon is is also required to contribute 10% it means the total contribution will be 20 which is within the maximum limit which is 30,000 so you'll get a full deduction of 20,000 of 10,000 which I contribute as an employee but the amount the employer contributes will not be a benefit it will be anable deductions as the employer is filing their income tax returns they'll be allowed to claim how much they are paying on behalf of Nixon as an expenditure so their taxable income also goes down okay then for gratuities because I know there employers who don't pay pension employees are on contract the employees upon expiry of their contract they are allowed to transfer up to 360,000 every year of their contract to a pay scheme without them being taxed so if Nixon for example is working for K and is on contract and he has been told for every year of your contract once your contract expires in five years we will pay you 1 million of course that is my wish we'll pay you 1 million per year of service then it means by the end of the fifth year I'm supposed to be paid 5 million the law allows me me to move 360,000 per year times 5 that will be close to 1.8 million into an pension scheme without being taxed so the balance of 3.2 is what will be subjected to payers you so that means you lower your taxes you increase your future pension uh money okay but again the rule for employers if you have employees on contract please don't pay them this money and they tell you we have transferred it to a pension scheme the our administrative processes require that the employer transfers that money directly to the pension scheme for the employee to enjoy the 360,000 an gratuity which is not taxable but remember the 360 should be taking even care of the statutory nssf so you actually have a smaller window it might be three three and something, not the full 360 in 2016 the government saw it better to remove taxation of pension income from employees who are senior senior citizens those are 65 years and above initially it was for both lome and monthly but again after review because of certain abuse uh the law was amended so that only uh periodic monthly p income was exempt thanks to the tax law Amendment Act of 2024 if you are retiring now for those who are retiring from December one if they are retiring because the pension scheme has dictated retirement age if your pension scheme or Provident fund detects the retirement age at let's say 60 like for government employees and you are retiring your pension is now supposed to be paid free of tax if it is a retirement annity same if you are withdrawing because of ill health you might be withdrawing at 40 at 50 but you've been a member of the scheme your pension or Provident is also paid free of tax and when we talk of ill health we also mean death we also mean maybe infirmity of any part of your body that incapacitate someone that cannot work so I I think as HR professionals this will be a good gospel to tell our employees so that anybody who is retiring after the promulgation of this loss can take their pensions Provident funds without being taxed of course there's also 20 years of being a member and some of us who have served for long as P read before we are waiting for just a few years so that when we retire we can have all our pension being we we can withdraw a pension money uh taxfree because we have served for at least 20 years the law allows you to move funds so if an employer is moving from company a to Company B you can move those funds without them being taxed okay the law allows portability of funds so that they not because they're just moving it from one retirement benefit scheme to another retirement benefit schemes if unfortunately an employee dies the law allows that benefits death benefits are paid free of tax up to 1.4 million and that 1.4 million is in totality not looking at each beneficiary but all the beneficiaries combined then we have taxation of gratuities and lamsam payments I think this one is always coming up because many employers are putting employees under uh under under under contract and uh upon uh end of that contract employees are are paid and therefore it is important to determine how do we tax that lamsam payment lsum payment just as normal pay is taxed on a crew but there's a special provision under P section five where if the income is going to be acur prior to five years then we lamp all that income in year five and tax it so what happens is if Nixon today is being paid lsum or gratuity for having worked five years the law GS that that 1 million has been accumulated or ACR over 5e period okay so over each year based on your payment on your last salary so we acrew it backwards for four years and then the balance is taxed in the 50 here I think with an example it will be very clearer so you can see this an example of somebody who received a service gratuity he received a notice pay and he also received some some some some U service pay gratuity whichever name you want to call it so what you do is H you look at the last year of service the number of years of service and how much the person has received so you see the person has received 69 9,280 so you supposed to spread back 609 for the 33 years this person was in service so if you divide it that way you find each year of service the person is supposed to be paid around 18,000 but the law tells us that we spread it backwards but tax any residual in the fifth year so we'll take 18,000 for the corresponding year retirement year 2023 year two year three year four have put two because in 2020 we had two rates of tax there was a 25% and a 30% I know there are complic complications around that then the last year we lamp the whole balance and tax it if the tax rate has not been changing then even if you tax it in one year it doesn't show any difference but if the tax rates have been changing then you need to spread it so that you tax accordingly in its respective year for example 32.5 and 3035 came in 223 so this person you need to spread it so that the taxation is fair in each year of service as required that is how we spread some of these lumsum payments now I want to take you through emerging issues uh once we go through emerging issues then I can take you through a bit of withholding tax from there we can pick questions comments and then we hope we'll manage that within the next 30 minutes somebody had asked about board members a very recent case a 2024 case you know there was a case very close to where I come from UI constituency that's the CDF and usually there's a CDF board so the board members were being paid allowances and what the car officials had visited the board and said no no no these committee allowances are subject to pay and and the board felt no no no the committee allowances are not supposed to subject to pay actually I don't know what they were understanding as allowances so the tax appeals tribunal has ruled that committee allowances and sitting allowances of public bodies and this will also extend even to private bodies as subject to pay as you so it's important as a HR professional when you have board members just take care that whatever allowances they paid is subjected to pay in respect to what my colleague had asked I think he had asked question on on on board members being taxed per year at the top rate or you need to determine whether that is a secondary employment and then you tax them appropriately so that you don't over tax them but the good thing is even if you have tax them when they file the annual returns they're able to claim any credit if it gives rise to a refund they can apply for their refunds one of the biggest questions I think that I'm meeting currently and I I'll say this without fear of contradiction after the entry of shi after the entry of the new nssf rates after the entry of affordable housing Levy I know many employers and I've audited some of them who have decided to Rebrand their employees as consultants my advice has been you putting those employees in a tight Corner because you are deducting 5% when the employee files their return two issues will come up remember section 162c now requires that you cannot claim a tax unless a an expenditure unless the expenditure is supported by an itms receipt so it means if you change your employees from employees to Consultants they must give you eims invoices or else we will uh you know gross up the withholding tax and require them to pay the top up and most of us as employees you get your money you pay your bills if somebody is being paid 100 ,000 per month it means in the at the end of the year that person shall have paid shall have been paid 1 million 200,000 if you put that person as an EMP as a consultant you shall have just deducted 5% of of 1.2 which I think is 60,000 so this employee will be having income of 1.2 million which is now not salaries but business income we will ask the employee which expenses did you incur H they can always manufacture but the next question will be if you incard these expenses give me itms invoices valid invoices and that is where the ra meets the road so most of those employees will not be able to substantiate that what does that mean the employee will be required to pay up to 30% of 1.2 million 30% of 1.2 million I'm looking at 420 minus the withholding tax of 60 you're looking at 360,000 where do we get where does an employee get 360,000 to pay so I think it is important to look at this thing with a better lens 360 degrees so that if somebody's an a consultant treat them as a consultant within the realm of the ACT if somebody's an employee treat them as an employee be in consonant with Section Five and the pay guidelines with respect to Taxation and in a very interesting case of ever Aviation versus K you can see what the court decided to be who an employee is the person's duties must be integral part of the employer's business the person must be in control and integration of the employer you know I've heard the where somebody tells you is an consultant but when you go to the consultant agreement you find the agreement saying that the consultant will get into the office at 8 and leave at 5 you will have 30 leave days a consultant cannot be controlled cannot have leave days cannot be paid when he raises an invoice he'll be but but for an employee we expect monthly payments in line with the Employment Act okay obligations to work only for that employer you might have to sign non compete disclosure agree nondisclosure non compete agreement hours there's even overtime bonus holidays are specified arrangement of income tax sometimes they are paid for n ssf and then the employer says this a consultant okay how is the contract terminated okay whether the individual May delegate work okay whether the person provide tools and equipment so I think it's important to look at all these indices to check whether whoever is working with us is really an employee what we call de facto employee or it is just branded as a consultant because again if car visits and find that issue definitely they will require you to account for on in line with Section 37 then uh we also have other issues like non inclusion of taxable benefits you find employees being given Air Time some have motor vehicle weather their sales staff and they able to keep those Vehicles during the weekend there's no logs kept housing they have been housed school fees paid for some employees and these are not put as part of benefits I think those are some of the non-compliance issues that might arise then a very interesting topic and and HR professionals I know you deal with this every day H an employee has been taken to court or there's an accident and there's Weber the courtt is pronouncing itself and saying you cause to the employee emotional distress there was deformation where you decided to go to a national newspaper with wide circulation and say the person whose photo appears here is no longer allowed to transact business on behalf of and that person takes you to court for defamation ulation discrimination physical injuries sometimes even impunity awards that courts can give the issue has been are those payments subject to pay and of course my answer which is very subjective will be no for the ones that I've mentioned but there are cases where an employee takes you to courot for wrongful discharge or dismissal failure to honor contract obligations so they need compensation for economic loss such as lost wages they lost business income they lost some benefits they want dismissal pay they want sance pay or they want payments in involuntary termination those ones from a top level I think the devil might be in the details they are subject to pay as you want so it's important to check at what lawsuits provide or even accidents and how they are compensated what is entailed in those compensations so that you know what is subject to pay as you ear and what is not subject to pay as you want there's an issue of remote working it appeared in our tax the tax procedures Amendment act 2024 now if anybody resident is working for a nonresident person the law requires that the non resident should on board the pin and have registration for that employee we have employees who are working abroad we have people who are engaging employees who are nonresident I think those are very important considerations to take to take into account now if you have employees who are working abroad and this is a very common question and as HR people you know it will come to you Nixon has gotten a job in Nigeria how do you tax me is that income taxable in Kenya look at what our law provides that an amount paid to one a person who is or was at the time of employment or when the Services were rendered a resident in Kenya okay then any payment the person receives for employment or services rendered are actually taxable in Kenya so it's important again to look at who is a resident person so if a person is a resident they have to be taxed in Kenya if it's a nonresident person of course I do not get into details of who is a resident but if the person is a nonresident you only tax the person in Kenya if the employer is resident or employer has what we call a permanent has a fixed base in Kenya where a double tax agreement exists Kenya has 15 double tax agreements India Italy Germany Sweden Zambia South Africa UAE I think Qatar and all those other countries France the employee is deemed to be taxable where Employment Services is being exercised and employment services because we are the laws are very traditional is deemed to be exercise to where the employee is physically present and I think if issue arises of an employee who is a resident of Germany or a Kenyan working in Germany it is always important to consult the double taxation agreement Article 15 of our double tax agreement with Germany so that is also important to take into account another issue has come in very interesting case civicon limited versus K so civicon secures a contract in South Sudan with the wfp world food program they're doing roads in South Sudan the one of the rules from wfp to civicon is you must engage Sudanese citizens so of course civicon on board Sudanese citizens who are also tax According to some Sudan Revenue rules but our gu say because civicon is resident in Kenya and we able to see payments going to some employees in South Sudan so our issue was is this not income subject to pay based on Section 5B a resident who is paid nonresidents who are paid by a resident company in Kenya but I think the tax appeals tribunal guided that pay was not payable because one the came from wfp which you know civicon was just acting as a conduit and again those employees were actually exercising their Employment Services while in Sudan and therefore we were not supposed to tax them a very interesting case because if you look at the Court's position on the funding coming from wfp what if civicon are the ones who are funding the payment of the employment services maybe a different discussion but always as I mentioned in the beginning if you have any technical or complex issue you can always reach out to our tax and policy advisory division to guide you on some of these Tax Matters witholding tax upon payment of certain services so this is very critical if you're paying a resident or a non-resident on certain payments then the law requires you to do a withholding tax it can be final or an advanced tax final means once you withhold a portion and remit to commissioner there's no further taxation advance means there's a withholding tax but it's not final therefore the person will declare their full income but take advantage or take credit of the tax that was withheld the issue of paid has been debated enough paid doesn't mean actual payment even when you just debit the entry or credit the entry the law deems that you have made payment and therefore with in tax is basically due some of the payments that are subject to withholding include management professional training fee so as a HR people if you take your people for training you've invited kesra you've invited PWC you invited ABC training or even your your Association and you paying them training fees the law requires you to withhold a 5% if those if the trainer is resident or even if you invite Nixon to come and train there a 5% of course within our our law if you invite a non resident to train you are dealing with IH who is coming to train your people okay and maybe they're coming from London then there's a withholding tax of 12 and a half so you need to take into that into consideration so there's consultancy legal fee you are paying lawyers you are paying accountants you paying Auditors you paying contractual fee you are building you are paying architect you are paying you know all kind of profession professions then we have winnings this is for betting companies then there are also people like was it last week when we had a very good gig in Kenya or the week after the week before you bring in an un resident to come and entertain your people and I know HR people you want to motivate staff December you might decide to invite kof to come and perform in your n party the law requires that if you are the promoter of that person you must collect a witholding tax from that Entertainer but if the person is resident you invite some of our local artists there's no withholding tax then royalties interest and deed interest dividends I know many circles are now paying dividends you'll find that you get your dividend minus a 5% that 5% is the withholding tax if you bu to withhold tax okay there's a penalty of 5% and an interest of late payment of 1% so it's important to look at that witholding tax is paid within five days upon making the payment so the moment you are crediting or debiting that transaction within five days the law requires you to remit the withholding tax of course nowadays once you remit a withholding tax certificate is automatic Al generated if it's not a final tax the certificate goes to the other person so that they able to claim the credit when they file their final uh return but if it's a final tax you not see any credit you not see any withholding tax certificate because it is final like most of us who get some dividends from from from from SOS uh I think that should be all from me back to you pey we can now pick up q& a and uh and and then we can progress in that manner thank you yes so we have a bit of time left so we'll go through some of the questions that we've asked and I want to start with the LinkedIn people so I see Caroline here has asked do you have to apply for the amnesty or if you pay for the principal amount the system will automatically clear penalties you're muted Nixon sorry phy uh in my presentation I've attached step by step guideline on how to claim the amnesty especially if you have if you have a tax owing so people can go through that but everything is done on ITX so what you need to do you file your return or go to generate uh go to the amnesty tab there's an amnesty tab once you go to the amnesty tab it will give you a window where you select the principal tax and all the penalties then immediately you are done with it upon submission it will generate for you a an amnesty certificate okay showing that you have applied for it you go back to generate a payment receipt number or certificate it will bring you to just pay the principal tax you'll actually find that penalties and interest does not get populated as you pay for the amnesty so that is the application process now if you are not able to pay the principal tax in total at once that is when you'll need to do a payment plan to the commissioner so you're doing a different application saying yes I know I owe so much but I want to pay the principal tax in one or two months remember we have barely three months to go before the amnesty expires so that is the process but if you have penalties only you did not file a return it's an ill return I will urge you just go file the return the penalties and interest will automatically disappear ah so only three months to go yeah okay yes three three months and a few days and maybe 20 months 18 days yes three months 18 days to be specific okay yeah but roughly there so Simon also asks um previously there was a tab on ITX profile where you'll just input your data and the annual pay automatically populated itself was this deleted maybe just clarify that uh maybe it's something I need to revisit allow me to look at it with our with our ITX team what changed but again we also alive to a lot of changes in how people work in the rates of tax and that's why continually every now and again we enhance the pay r return just to accommodate the different business models and to make it much more user friendly but I can come back with a response to that yeah okay s s so we will get back to you on that we'll send we'll for sure send uh you an email with responding to all the questions that you have right after this presentation um moving on to YouTube I can see um there some there's a team from K who are responding to some of the questions so that's great um I'll go to the ones that were not answered so shalel kisan thanks for joining in the live he asks for purposes of determining shift and housing Levy kindly explain what constitutes gross salary okay I know there's been a lot of splitting of here on what is gross salary but you go back to gross salary with respect to the employment act so any amount that you receive as part of your salary excluding the what is income tax act you know people also confuse the gross salary and what is the income tax act remember it's a shi act so you look at the gross pay in the ey of the Shi act so noncash benefits will not feature there but all other payments that you receive as an employee you'll actually be subjected to shift you'll be subjected to affordable housing Levy and remember affordable housing Levy is also paid by even nonresidents who have paid salaries from Kenya okay but if you have any unique that I've already mentioned you can always write so that we guide you properly all right I believe I think you've answered that conclusively I'll jump to LinkedIn I see Caroline mongi with another question she asks what of sants pay due to redundancy that includes the one month notice assuming the employee will be paid in Le how is tax calculated in such a case yes payment in Le of notice will be paid will be taxable in the month in which it is paid so if you get payment in Le in that month it is paid put it together with any other salaries and tax it and I think I demonstrated that in my example when you share that when I share the example you'll actually look at it you'll see how it is completed yeah so one thing we'll definitely share the presentation to everyone who signed up on email so in case you did not sign up maybe you just join directly from LinkedIn drop us your email and then we will add you to the list the mailing list once we send the send out the presentation I can also see some comments John Miner hey h he says he's learning uh that's on LinkedIn now this this is an interesting one Daniel wome he says why would K require Tims from a consultant consultancy fee is merely charge rate for service which may not necessarily include expenses I can sense the tone and he had when he was asking the question so tell us why would K require E from a consultant nexton yes Daniel uh you know sometimes we want to run away that we are the we we are not the ones who make the law but our representatives make the law which is Parliament so if you look at section 23A of the tax procedures act it is very categorical that if you are doing any business and consultancy is actually business if you go to section two of the income tax act it says business means trade manufacture profession which is also part of consultancy so it says if you are in business you are supposed to issue an eims compliant invoice except for the exclusions that I have stated in that section you know import of services or Goods you know for banking some of those banking services you know payment of salaries those ones are not subject to Tims but the law requires that every person doing business must issue an invoice and so consultancy is an in is a business you have to issue eims invoice remember in is not a tax I think that is what sometimes confuses people somebody he and says this is a tax no it is an invoicing tool so it's even good for you by the way if if you if you sent Nixon to go and buy for you a spare part in a certain shop how will you tell that I've bought the spare part from that shop I can come up with a fake receipt but with itms you can actually check the C and verify that the shop you had sent me is the one that has I've bought from so eting is not just for the taxman alone it's also for business people it's a good tool of course whatever teething challenges that are there that are being addressed but it's just an invoicing tool and I hope that that that you come down Daniel nion you know you'll have to forgive us but got to a point where everything is been tax man so yeah it's easy to confuse it as as tax you know anyway let me not get into it I want to keep my job so anyway um uh we also have a question again from Caroline hey thank you Caroline you're a very active participant we like it so she also asked regarding the consultancy is there a time frame for one to be a consultant in a company tell us you know uh I'm not a lawyer but we always told that we' never interfere with contractual agreements what we do is to place tax in the contractual agreement so if you have a contract with the company to be a consultant for two years will not interfere with that the challenge would be where the contract looks like an employment contract and not a consultancy contract then now we'll say then there's issue with substance in this contract it is not consultancy so I think key is how you contract but we cannot dictate to you how you contract and what period and your terms because that is that is Private Affairs basically yeah yeah and I think you did a good job in really outlining what constitutes like a consultancy as opposed to like an employment so sure um thank you for covering that um Shel has Shel from YouTube he asks if my monthly salary is 80k but in a particular month my gross pay goes up to 100K as a result of 20K leave allowance which is not a regular payment how do we determine pay given that irregular payments are not chargeable to shift and housing Levy I think that's a really good question it is a good question this confusion must have occurred in the in the in the in the in the affordable housing Levy that was declared unconstitutional that is the time that K gave guidance that if the payments are irregular then is not subject to a AHL the affordable housing Levy but now with the affordable housing Levy act there is nothing regular or irregular so long as you earning gross pay from your employer it will be subject to affordable housing Levy 1.5% shift is not even there okay so if in one month you're earning 100K in February you get your leave pay which goes to 180 it will be subject to affordable housing Lev in total okay well said um Daniel because I think I want to rush through I want to at least make sure everyone is answered so allow me not to comment and just go to Daniel musoka he says just to take you back to nssf TI 2 some Tax Consultants advis that it is not mandatory as long as you have a running pension scheme please comment uh Billy can you allow me to not to comment on that to leave it for nssf so that I don't mascarade as as a pension expert yes I think maybe with with nssf we can reach out to them get clarity from their end but I think it's also important to look at is it the third schedule to the nssf ACT it will demonstrate to you whether there's any exemption so I don't want to explain what I'm not sure about thank you okay no problem so I think on part two we should bring an ssf team on board all right so um will fresher asks um I think maybe you would have you answered this in part but just clarify can a director fee sub subjected to statutory deduction or you can just withhold the 5% and that's it we've agreed director's fees is a salary By Any Other Name so put it together in the month in which it is paid and tax it under pay rules H actually there is a guideline that car gave back in it must have been 2008 or six there about you know sometimes director's bonuses are not automatic sometimes they have to be declared once the year is ended H so the guidance we have is that if director's fees and bonuses are to be declared the pay must be paid latest four months after the end of the accounting year or in the month in which they are declared but the latest is by end of the fourth month after the end of accounting year awesome all right um jumping on to LinkedIn Brenda asks could you shed more light regarding the taxes on pension for those retired before December okay December which year December we might be having December [Laughter] 1990 maybe she could explain December which year December which year okay Brenda if it is December if it is December 2024 they will be taxed according to those old rules but any pension payment subsequent then we'll get the favorable treatment currently oh okay okay so you 1990 but you are still getting your pension income effective December 2024 that income will not be subject to tax provided your retirement is in line with exemptions under paragraph 53 of the first sheding okay so that's two more questions I see we have two minutes but um we'll just take the remaining questions don't worry we'll answer the questions that have been asked I'll jump to YouTube mudoni asks is what what tax required on interest paid to an external lender what tax withholding tax it's is withholding tax oh sorry yeah yes so if you are paying interest to a foreign lender the withholding tax is 15% on the interest you are paying to the foreign lender if we have a treaty with the country of the foreign lender visit the double tax avoidance agreement so that you guided as to the exact rate but what I know is most of the rates are about 15% so yes there's a withholding tax all right okay so the last two questions uh still on YouTube what constitutes an individual contractor agreement is this also deemed as tax evasion I'm I'm suspecting wo might be a lawyer in terms of what an individual contractor agreement what I read from here is that we can contract for example Nixon can contract with HR box that as individual contractor agreement but the substance of our contract is what will detail whether it's an employment contract which we call employment is it a contract for services and a consultancy contract which is an employment for service okay maybe I'm I'm I might be interchanging the two so key is what is the nature of our dealing the contract might be there but is the contract for consultancy or is for employment if you are masquerading the contract you are masking the contract as for consultancy while it is for employment that is actually tax evasion and we can charge you with respect to section 83 double the tax so officers might be lineate but sometimes if that is found out then yes it is a r case for tax evasion or avoidance um okay so the last question okay um please explain I think you mentioned this but maybe you can just clarify please explain who is required to issue itms I think this is uh I want I want to draw our our listeners attention to the many documents many podcasts YouTube videos that has been issued by K you able to get all those who are required to issue it but they short so long as you are doing business in Kenya you running a kiosk you are running a big company you are running which top 40 under 40 you know so long as it's a company the Safari coms of Kenya you are supposed to issue eims when you are invoicing so eims is an invoicing tool so so long as you're invoicing somebody you invoicing the County government you are invoicing HR box you're invoicing k then you have to issue an eims invoice all right so basically you've you've mentioned almost everyone there but um we will oblige we will we will oblige so thank you so much I think we've come to the top of the hour in fact we have extended by two minutes so our apologies for that but let me just um repeat if you had not signed up through the link and you had just registered P LinkedIn and you'd like the presentation drop us your email we'll be sharing um the presentation that Nixon has just made to you and then if you have have any question that has not been answered uh whether it's regarding this or payroll pension please also drop them in the email or in our any of our chat sections can find us by LinkedIn we'll make sure we provide the right answers to you on your emails all right all right so with that we've come to the end of the session allow me to thank um K and Nixon for for leading Us in such an informative session I'm pretty sure just by the engagement people will be here demanding for part two will you come when we ask you to come and always available always available good to know good to know so thank you so much and for anyone who's watching if you're looking for a people Solutions partner that is software HR software and HR services please reach out to us hbox africa. Africa is our website you can sign up for a demo or a call or even on LinkedIn will be available so without with that allow me to beat you goodbye and uh we'll see you at the next one bye guys bye and thank you