Taxation is the process of collecting and managing tax collections. Tax are charges imposed onto individuals and profit making entities by government of the land. The government in return provides services to it’s citizens such as security, infrastructure, education etc.
Taxes can be direct or indirect.
Direct taxation
Direct tax includes taxes levied on incomes of individual persons and corporates.
Indirect taxation
Indirect tax is a tax imposed on goods and services before they reach the consumer who will pay tax on them. such tax is included in the market price of the goods or services and will be paid to the government by the seller of such goods and services. types of indirect services includes:
- value added tax(V.A.T)- This are taxes levied on consumer goods and services
- Exercise duty- for taxes levied on locally manufactured goods
- custom duty- for tax levied on imported goods
- Export duty- taxes levied on goods being exported
Income tax
Every one earning an income tax in a country is bound by law to give part of their income to the government as tax.
Amount of tax one should pay depends on the amount of income one receives.
sources of income could be salary, wages, commissions, interest on bonds, dividends from shares, profits from business activities etc.
The rate at which income tax is taken by the government are revised from time to time. New rates are made to take effect from 1st January of the following year.
Pay as you earn(PAYE)
PAYE is a system of tax collection whereby employers deduct tax from employee’s income to remit the tax to the government. The tax deducted is proportional to the income of the individual.For purposes of computing PAYE, an employer is required to apply the Individual Income Tax
Rates (Bands) that range from 10% to 35% as per Finance Act and as tabulated by governing authority.
A typical to guide taxation based on income is shown
| Monthly taxable income(Kshs) | Rate of tax |
| 0-24,000 | 10% |
| 24,001 – 32400 | 15% |
| 32,401 – 59900 | 20% |
| 59,901-120,000 | 25% |
| 120,001 – 300,000 | 30% |
| above 300,000 | 35% |
| tax relief | 2,400 |
The table above will be used to calculate tax due from salaried people in the country.
Tax relief
Tax relief refers to various deductions or exceptions that reduces the amount of tax to be paid from taxable income.
Taxation: Personal Relief
Personal Relief is granted to resident individuals.It is meant to lighten the tax burden on the taxpayer .
It is currently set at KShs 2,400 or KShs 28,800 per year .
- Insurance Relief
Insurance relief is granted to an employee who has paid insurance premiums for life or
health or education policies for himself, his wife or child.
Relief is given at 15% of premiums paid up to a maximum of Kshs 60,000 per annum.
For education and health, the policy has a maturity period of a t least 10 years.