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Taxation is a part of our everyday life. Everyone pays taxes directly or indirectly. A popular saying goes that “nothing in life is certain except for death and taxes”. Understanding the concept of taxation is essential so that individuals can understand the need to pay taxes. This course offers an introduction to taxation.
2.1. Introduction
Taxation is a part of our everyday life. Everyone pays taxes directly or indirectly. A popular saying goes that “nothing in life is certain except for death and taxes”. Understanding the concept of taxation is essential so that individuals can understand the need to pay taxes. This topic attempts to address taxation.
The content below brings out aspects of taxation, which will help taxpayers understand taxes in better ways. The content areas cover in an elaborate way, what taxation is, why taxes should be paid and the specific functions financed using taxes.
i) What is a government?
ii) What is tax?
iii) Services financed through taxes
Man is at the top of the hierarchy in the animal kingdom and can be described as an orderly creature that plans life precisely. They (men) elect a few people to govern them and take care of their affairs. A government is therefore described as a system or group of people ruling an organized community, often a state. Citizens expect the government to provide them with basic necessities as spelled out in the Bill of Rights.
The government does not generate its own money for the provision of basic services. It, therefore, charges a levy/fee on all products, income, or activities then pools these funds from citizens and corporate entities to meet government expenditure. This fee is referred to as tax and its purpose is to finance government expenditure in the provision of public services such as health, education, and infrastructure.
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Service |
Examples |
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Infrastructure |
Roads, bridges, dams, airports, rural electrification among others |
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Medical Services |
Public hospitals and dispensaries, National Hospital Insurance Fund (NHIF) among others |
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Education |
Free primary education, subsidized secondary education, regular university, and tertiary colleges’ education. |
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Funds |
School bursaries, scholarships, Constituency Development Fund (CDF), Youth fund, Women fund among others |
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Loans |
Higher Education Loans Board (HELB) |
Taxation has been in existence from time immemorial. A study of ancient history shows a record of early taxation in ancient Egypt around 3000-2800 BC. Tax is also recorded in both the Bible and Koran. This means tax is not only a moral obligation but also a religious one.
i) History of tax.
a) Taxation in ancient Egypt.
b) Taxation in the Bible and Koran.
c) Taxation in colonial Kenya.
The first recorded system of taxation originated in Egypt around 3000-2800 BC. The ruling pharaoh would collect levies during his tour of the kingdom. However, tax history for more than 2,500 years has focused on two significant issues namely who pays and what is taxed.
A record of early taxation is found in the Bible in Genesis 47:24 where Joseph instructed the Egyptians to pay 20% tax saying that “...but when the crop comes in, give a fifth of it to the Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children." In the New Testament, taxation is referred to when Jesus urged his followers to “give unto Caesar what belongs to Caesar and unto God what belongs to God”. The story of Zacchaeus, the tax collector, also clearly demonstrates that people paid taxes in the days of Jesus.
According to Islam, the payment of tax existed in the form of zakat which was made obligatory by Allah. One was required to part with some of his/her wealth by giving it to others. The zakat is taken from an individual’s surplus wealth after all their spending.
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Zakat |
Tax |
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Obligation made by Allah |
The obligation imposed by the government |
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Zakat is permanent, constant, and regular |
Taxes undergo changes from time to time |
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Zakat is an Ibadah (the act of worship to express gratitude to Allah) |
Tax is primarily a matter between citizens and government or state authority |
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Zakat is used to meet specific social needs such as provisions for the poor, to free debtors and people from bondage |
Tax can be spent for any purpose as the government chooses |
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Zakat is spiritual as well as economic |
Tax is economic |
Historical accounts reveal that taxes were paid by poor peasants, slaves, colonized and conquered people to support the government and wealthy classes. In Kenya, during the colonial period, the locals were subjected to poll tax whereby the white government collected a monthly fee from each household. Since this money was collected from every house, locals referred to it infamously as hut tax.
Where the head of the family (breadwinner) was unable or failed to pay the poll tax, the administration forcefully grabbed his assets like chicken, goats, or even furniture. These punitive measures have formed the basis of Kenyans’ dislike and negative attitude toward the payment of taxes.
3.3. THE ROLE AND MANDATE OF KRAKRA is the government body that deals with all taxation issues in Kenya. It plays an important role in the collection of taxes as the country relies on these funds to run national development programs. Like any other organization, KRA has clear vision and mission statements that supplement the overall goal of the organization in collecting revenue.
i) Formation of KRA.
ii) Structure of KRA.
iii) Role and mandate of KRA.
iv) Vision of KRA
v) Mission of KRA
Kenya Revenue Authority (KRA) was established by an Act of Parliament, Chapter 469 of the laws of Kenya, which became effective on 1st July 1995. KRA is charged with the responsibility of collecting revenue on behalf of the Government of Kenya.
The core functions of the Authority are:
A Board of Directors, consisting of both public and private sector experts, makes policy decisions, which are subsequently implemented by the KRA Management. The board Chairman is appointed by the Head of State. The Chief Executive of the Authority is the Commissioner General who is appointed by the Cabinet Secretary, of the National Treasury after a thorough interview and vetting process.
The mandate of KRA is to assess, collect and account for all revenues in accordance with the written laws and the specified provisions of the written laws.
KRA’s vision statement is to be, “a globally trusted revenue agency facilitating Tax and Customs Compliance.”
To enhance mobilization of government revenue and to facilitate the growth of economic activities and trade by ensuring compliance with tax and customs laws
The KRA core values that guide service provision and staff operations are trustworthy, Ethical, Competent, Helpful, and Simple.
4.1. Introduction
KRA has two main revenue departments namely the Domestic Taxes Department (DTD) and Customs and Border Control Department (C&BC). These different departments are responsible for the assessment, collection and accounting for various taxes. There are other support departments including Legal Services & Board Coordination, Investigations and Enforcement Department (I&E), Corporate Support Services (CSS) the Strategy, Innovation and Risk Management (SIRM) and Intelligence and Strategic operations (I&SO).
4.2. Domestic Taxes Department
The Domestic Taxes Department is primarily responsible for the administration of Revenue Acts, in order to collect and account for revenue derived from both Kenya (Inland Revenue) and income acquired by Kenyan residents from outside Kenya.
The Domestic Taxes Department is guided by the following revenue acts:
A PIN is a unique identifier for tax purposes and shall be used for the submission of returns or any other transaction as required under tax law.
It is processed through the KRA online platform, iTax. Contrary to what some people think, PIN is not a tax.
The PIN is for resident and non-resident individuals, corporate entities and groups.
i. Registration/acquisition of real estate property in Kenya.
ii. Approval of development plans and payment of water deposits.
iii. Registration of motor vehicles, transfer of motor vehicles, and licensing of motor vehicles.
iv. Registration of business names.
v. Registration of companies; local, subsidiaries, and branches in Kenya.
vi. Underwriting of insurance policies.
vii. Trade licensing.
viii. Importation of goods, customs clearing, and forwarding.
ix. Payment of deposits for power connections
x. All contracts for the supply of goods and services to Government Ministries and public bodies.
xi. Opening accounts with financial institutions and investment banks.
xii. Registration and renewal of membership by professional bodies and other licensing agencies.
xiii. Registration of mobile cellular pay bill and till numbers by telecommunication operators.
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Applicant |
Document ( and Issuing Body) |
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Individual-Kenyan citizen |
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Individual-Non-Kenyan resident |
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Individual-Non-Kenyan Non Resident |
( for a professional)
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Individual-Diplomat |
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Company incorporated in Kenya |
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Partnership (not husband and wife) |
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Company not incorporated in Kenya |
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Self-help groups, churches, NGOs, schools, pensioners, foundations/philanthropic groups and other entities |
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4.3 Types of Taxes under DTD
Income tax is a direct tax where deductions are made on income derived in Kenya as prescribed by the Income Tax laws.
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Income |
Person |
Tax |
Return |
Tax collected in advance |
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Business/Farming/ extractive industries/loyalties |
Corporation or non-Individual
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Corporate income tax |
Income tax Company return (IT2C) |
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Individual |
Individual Income tax |
Individual Income tax |
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Rental income |
Corporation or non-Individual |
Corporate income tax
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Income tax Company return (IT2C) |
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MRI |
MRI Tax |
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Individual |
Individual Income Tax |
Income tax Return |
Withholding tax |
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MRI |
MRI Tax |
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Business Income Turnover of up to KES. 50 million |
Corporate and individual |
Turnover Tax |
Turnover Tax Return |
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Dividend and interest |
Corporate |
Corporate Tax |
Income tax Company return (IT2C) |
Withholding Tax |
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Individual |
Individual |
Income Tax Return |
Withholding Tax |
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Digital |
Corporate |
Digital Service Tax |
Digital Service Tax |
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Individual |
Digital Service Tax |
Digital Service Tax |
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Employment |
Individual |
Individual |
Income Tax Return |
PAYE |
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Employer |
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PAYE |
PAYE |
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Pension |
Pensioner |
Individual |
Income Tax Return |
Withholding |
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Pension |
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PAYE |
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Capital Gain Tax |
Corporate |
Capital Gain Tax |
Capital Gain Tax |
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Individual |
Capital Gain Tax |
Capital Gain Tax |
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Betting and gaming |
Corporate |
Betting and gaming tax |
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Individual |
Betting and gaming tax |
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