KRA mulls returns exempt for ‘employment only’ income workers

“No filing will be required for specified TP (taxpayer) segments e.g employment income only and mobile-based approach for the informal sector,” the taxman revealed, noting that it is procuring a new tax system that would support this new arrangement.

Insiders said the implementation of the exemptions would however depend on ongoing evaluations on compliance risks.

Currently, millions of employed workers are compelled to file annual tax returns with the KRA even in instances where they have no extra income other than from employment.

In the current arrangement, workers are required to file employment income returns as captured in a Tax Deduction Certificate popularly known as a P9 form issued to them by their employer.

The certificate gives a breakdown of the employee’s salary and the tax that was deducted from their gross pay and paid to KRA every month for the months the employee worked.

Failure to meet the tax filing deadline is an offence that attracts a Sh2,000 fine. Companies pay a Sh10,000 penalty or five percent of the tax payable in the year the return captures or whichever is higher.

However, under the planned changes by the KRA, an employer would inform the taxman how much a worker earned and this would be pre-filled in the tax return schedules as it happens.

KRA said that its new tax system will support returns based on real-time compliance checks.

Filing returns is one of KRA’s main strategies for netting tax cheats and growing income tax collections.

The law demands that anyone with a KRA personal identification number file returns irrespective of employment status.

Taxes on salaries, wages, and allowances paid to workers grew at a single-digit rate in the financial year that ended in June.

The Kenya Revenue Authority netted Sh543.19 billion in payroll taxes for the year ended June 2024, a 9.76 percent growth over Sh494.90 billion in the year before.

The growth of pay-as-you-earn (PAYE) receipts remained in the single-digit territory for the second year running even after the Ruto administration raised tax rates for the high-salary earners in the review fiscal year.

The taxman enforced a 32.5 percent tax on workers earning more than Sh500,000, while the rate for those on more than Sh800,000 monthly pay rose to 35 percent. The maximum PAYE rate was previously 30 percent.