The quote by Benjamin Franklin is famous that in this world nothing can be said to be certain, except death and taxes.  This article outlines the tax obligations imposed on employment income in Kenya.

Governing Law

Taxation of employment income is primarily governed by the Income Tax Act and the Income Tax (PAYE) Rules.  The key sections in the Act are Sections 3 (2) (a) (ii), 5 & 37.

Who is taxable?

Per Section 5 (1) of the Act, tax is imposed on;

  1. a resident employee on his worldwide employment income; and
  2. a non-resident employee on employment income from a resident employer or the permanent establishment in Kenya of a non-resident employer

The remuneration to directors is considered as payment for services rendered and is taxed as employment income.

Who is an employer?

Per Section 2 of the Act, “employer” includes any (i) resident person responsible for the payment of, or on account of, any payments to an employee, and an (ii) agent, (iii) manager or (iv) other representative so responsible in Kenya on behalf of any non-resident employer.

What is taxable employment income?

This includes wages, salary, leave pay, payment in lieu of leave, sick pay, fees, commissions, gratuity, salary arrears, travelling, entertainment or other allowances.  They also include employment benefits in the nature of expenditure catered for by the employer such as house rent, motor vehicle, electricity, water, furniture, house help, telephone bills, school fees, etc. 

Taxable employment income comprises cash and non-cash benefits remunerated to an employee or a director

Non-cash benefits are generally valued at the higher of the cost to the employer or market value though there are prescribed taxable rates for benefits such as furniture, electricity, telephone and motor vehicle use.

Where an employee is granted share options by the employer (ESOP), the ESOP is required to be registered with the Kenya Revenue Authority (KRA).  The taxable benefit under a registered ESOP is the difference between the market price of the shares and the offer price at the date on which the option is granted to the employee. 

Income listed in the First Schedule to the Act is, however, tax-exempt – this includes the income of any person or organization which is tax exempt.

Computation of taxable employment income

Employment income is subject to PAYE which is calculated based on the individual graduated rates below: 

PAYE RATES AS AT 2018Annual (Kshs)Monthly (Kshs.)Tax Rate (KShs.)
On the first147,58012,29810%
On the next139,04311,58715%
On the next139,04311,58720%
On the next139,04311,58725%
On all income over564,70947,05930%
Personal relief (applicable to resident individuals)16,8961,408 

What are the tax due dates for PAYE? 

PAYE on employment income should be remitted to KRA by the employer before the 10th day of the month following the payroll month. 

What are the offences related to PAYE non-compliance?

Failure or late filing of PAYE returns attract a penalty of 25% of the tax payable or KShs. 10,000, whichever is greater.

Failure or late payment of PAYE attract a penalty of 5% of the tax payable and interest of 1% per month on the unpaid tax.

The employee too has a responsibility to file his or her own annual income tax return.  Failure or late filing of the return attracts a penalty of 5% of the tax payable subject to a minimum of KShs. 2,000.

Other tax obligations regarding employees

A training levy is charged on employers at KShs. 50 per employee per month.  The Directorate of Industrial Training administers the Industrial Training Levy. Contributing employers qualify for reimbursement of approved training expenses.

Both the employer and employee are required to contribute 1.5% of the employee’s monthly basic salary (subject to a maximum of KShs. 5,000) to the National Housing Development Fund.  The contribution is towards the provision of affordable housing by the Government.  The contribution is provided for in the Employment Act, No. 11 of 2007.  Currently, the contribution is voluntary pending the outcome of a court ruling halting compulsory contribution.

Fringe benefit tax (FBT) is taxed on the difference in value between the market interest rate and the actual interest charged on a loan advanced to an employee by the employer. The market interest rates are published every quarter by the Commissioner.  FBT is borne by the employer and is due on or before the 10th day of the following month.

This article has been written by: Ann W Ng’ang’a.

Ann is a tax lawyer and tax consultant.  She has extensive experience in legal commercial practice and tax law.  She has worked with the Kenya Revenue Authority for 9 years as a tax lawyer and a certified Revenue and Customs Officer.  She is an IBFD Author and an LL.M. Graduate in International Trade Law from the University of Nairobi.  She teaches tax law at the Kenya School of Revenue Administration and has a research interest in tax avoidance in developing countries. She may be contacted on

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About Anne Babu

Anne is an Advocate of the High Court of Kenya and the Founding Partner of Anne Babu & Co. She has practised employment law for over 12 years and her employment law practice has been recognized by the prestigious Chambers & Partners. Anne cares about employers and their labour issues.


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  1. Peter says:

    Great work you are doing here.

  2. simoo says:

    Hi Ann. I appreciate your posts very much since they are factual and educative.
    However, how can one reach you for professionally for personal issue? And what would be your fee note.

    1. Anne Babu says:

      Thank you. I currently represent only corporate entities.

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