What you need to know about Presumptive Tax in Kenya

Background Information

Section 12C of the Income Tax Act, Cap 470 provided for Turnover Tax. Turnover Tax has been in effect since 1 January 2007 up to 31 December 2018. Turnover Tax was levied upon a resident person whose income from business was accrued in and derived from Kenya and did not exceed Kenya Shillings Five Million (KShs.5,000,000) during that year of income.

During the 2018-2019 Kenya National Budget Forum, the Cabinet Secretary of the National Treasury Henry Rotich proposed the introduction of the Presumptive Tax to replace Turnover Tax which was charged at 3%.

The Finance Act of 2018 then repealed the provision of Turnover Tax and replaced it with Presumptive Tax. Taxpayers who have Turnover Tax arrears are still required to clear the arrears.

The Presumptive Tax is an effort towards the Kenyan Government’s objective of increasing its revenue collection and expanding its tax base.

Presumptive Tax

Presumptive Tax is payable by a resident person whose turnover from business is less than KShs.5,000,000 during a year of income.  

A resident for the purposes of tax is defined as follows:

1. When applied in relation to an individual, means
   • That he has a permanent home in Kenya and was present in Kenya for any period in any particular year of income under consideration; or
   •  That he has no permanent home in Kenya but –Was present in Kenya for a period or periods amounting in the aggregate to 183 days or more in that year of income; or Was present in Kenya in that year of income and in each of the two preceding years of income for periods averaging more than 122 days in each year of income;
2. To a body of persons, means
   • that the body is a company incorporated under a law of Kenya; or
   • that the management and control of the affairs of the body was exercised in Kenya in a particular year of income under consideration; or
   • that the body has been declared by the Minister, by notice in the Gazette, to be resident in Kenya for any year of income.

Presumptive Tax is applicable to persons who are issued or liable to be issued with a business permit or trade license by a County Government in a year of income.

Payment of Presumptive Tax shall be at the time of payment for the business permit or trade license or renewal of the business permit.

The payment of the Presumptive Tax officially began on 1 January 2019. The rate of the Presumptive Tax is 15% of the business permit fee or the license.

Some of the businesses that are required to pay the Presumptive Tax include motor cycle operators and small scale traders.

Exceptions

Presumptive Tax does not apply to income derived from:

1. Management and professional services;
2. Rental business; or
3. Incorporated companies.

Presumptive Tax is also not applicable to persons whose incomes are exempt from tax as stipulated in the First Schedule of the Income Tax Act. However, valid certificates of exemption are needed to prove that the said person is exempt from paying tax.

How to pay for Presumptive Tax

The tax is paid through the iTax portal.

The iTax portal will generate a Payment Registration Number (PRN) after which the taxpayer will pay through MPESA or at any KRA partner bank.

Late Payment of Presumptive Tax

The Penalty for late payment of the Presumptive Tax is 5% of the tax that is due together with an interest of 1% per month as stated in the Tax Procedures Act, 2015.

Conclusion

Presumptive Tax is payable by a resident person whose turnover from business is less than KShs.5 million during a year of income when the person is acquiring or renewing a business permit or license with a County Government. It is paid at the rate of 15% of the business or license fee.

Dr. Benjamin Musau

I am a Kenyan Advocate and the Managing Partner of B M Musau & Co., Advocates, a position I have held since 1999. My work encompasses regulatory reforms, reduction of administrative burdens, the structure of business entities, joint ventures, acquisitions, banking, foreign investment and other general corporate areas