Everything you need to know about KRA tax and iTax Portal

In Summary

• If you intend to grow your business beyond the briefcase, then get a PIN number. It is good business practice; and it is essential for a good citizen. Also, most corporates will not do business with individuals or companies that do not have a PIN certificate.
• And that’s not all; if you intend to get a government tender, you need to get a valid tax clearance certificate, which you can only get if you have been paying your taxes, hence the PIN number.
• This is tax on any earnings based on your income range. However, if your income is below the taxable income range, which is Sh12,196,  your employer should file a nil return on your income. If you are self-employed, you should file a nil return on iTax yourself. 

The word tax tends to be very intimidating for most – it does have a gloom and doom lingering around it if you think about it, especially because words and phrases such as “penalties” and “the government will find you” are associated with it. As long as you do your due diligence as a citizen though, and pay your taxes on time, there is nothing to worry about. 

When should I start paying tax?

As long as you are 18 years old, and have an income, you are required to pay and submit your taxes. 

Why is it essential to get a PIN number?

 

If you intend to grow your business beyond the briefcase, then get a PIN number. It is good business practice; and it is essential for a good citizen. Also, most corporates will not do business with individuals or companies that do not have a PIN certificate. And that’s not all; if you intend to get a government tender, you need to get a valid tax clearance certificate, which you can only get if you have been paying your taxes, hence the PIN number. As you can see, to run a successful business, it is not negotiable; you need a PIN number. Your taxes run the economy; that is how the government pays its bills and brings development to the people.  

How do I get a PIN number?

First, you have to be at least 18, with a National ID to prove it. Thanks to technology, you do not have to physically go to Kenya Revenue Authority to get one. Go to the iTax website, https://itax.kra.go.ke/and click on the tab, ‘apply for new PIN’, key in your details and it will automatically generate a PIN for you. 

Do I need to get a separate PIN for my business?

It depends on the type of company you have. If it is a sole proprietorship, no, the business will use your personal PIN. If it is a limited company however, you need to create a new PIN for your business because you are a separate entity from your business. 

What is Income Tax?

This is tax on any earnings based on your income range. However, if your income is below the taxable income range, which is Sh12,196,  your employer should file a nil return on your income. If you are self-employed, you should file a nil return on iTax yourself. 

What are Annual Returns?

This is simply a confirmation to the government that you have earned what your employer has documented. It confirms how much tax was deducted, if at all. The returns you file on iTax are based on your income between January and December of the previous year.

When you file your returns on iTax and click ‘send’ on your form, you will get an automated response on email of the amount of unpaid taxes if any. You are then normally required to pay the arrears in taxes in a month. If your bill is too high you can always go to KRA to negotiate a payment plan with a debt officer.  

What is Withholding Tax?

 This is tax on any service rendered that is withheld by the person purchasing your service. For example, if you are contracted to build a website, it is the duty of the client to withhold five per cent of the amount you charge to pay to the government. If you are expecting a pay of up to Sh23, 999 from a client, the five per cent tax does not apply.

Any payments of services from Sh24, 000 and above attracts a five per cent withholding tax if the service being paid for is a consultancy service. However, for construction, withholding tax attracts a penalty of three per cent.

As long as you are registered with iTax, any payment that you receive and is registered with iTax, you will automatically receive a withholding certificate on your email. 

What is Installment Tax?

This is really important for all the self-employed and small business owners. The government requires that you pay your taxes in four installments to KRA. On a normal January to December calendar year, the installments should be paid by April 20, June 20, September 20 and December 20.

You can pay 25 per cent of last year’s income and increase by 10 per cent, or you can calculate what your anticipated income will be in the current year and calculate 25 per cent of that income and pay as your installment tax. The tax you are paying is on profits made from your sales. 

How do you pay your taxes?

When you submit your returns on iTax, it offers you options on what payment format you prefer. Cash, cheque or RTGS funds transfer, and you also select the bank you would like to make the payment to. Once you submit all that information, KRA automatically generates an e-slip notification, and sends it to the email you provided on your iTax form.  You have a window to pay by 20th of the next month to KRA. That e-slip is what you need to carry with you to your bank of choice to make the payment. If you pay later than the 20th, you face penalties. 

What if I have not made money at all that year? Do I need to file my returns?

Yes, you do need to file returns. As long as you have a KRA PIN and have opened your iTax account. You can simply log on to iTax and click on the file returns tab which gives you an option for “File Nil Returns” simply click on that and that’s it.

How to File KRA Tax Returns on iTax Portal 

Are you living and working in Kenya? Do you own a business, are self-employed or earn an income for giving services or the sale of products? Do you earn rental income every month? If your answer to any of these questions is yes, then you are obliged to pay tax.

Individuals (residents or non-residents) and companies are entitled to Pay-as-you-earn (PAYE) income tax.  Once you have complied in paying your taxes, you should file your tax returns. This exercise is done for a particular year of income and should be completed between January 1 - and June 30 of the following year. For instance, for the tax period 01/01/2021 - 31/12/2021, returns should be filed on or before June 30.  

For companies, this period varies depending on their financial year. If a company’s accounting period starts January 1 - December 31, it should file its returns on or before June 30 of the following year.

For years now, the Kenya Revenue Authority (KRA) has an online tax return platform (iTax) which has simplified the process. 

KRA Tax Penalties 

If an individual or company fails to file returns in the required time they attract a penalty for late filing:

• Late filing of individual returns (PAYE) attracts 25% of the tax due or Ksh10,000 whichever is higher.
• Late filing of Monthly Rental Income (MRI) returns attracts 5% of the tax due or Ksh2,000 whichever is higher or Ksh20, 000 for non-individuals.
• Late filing of Excise Duty, Value Added Tax (VAT) attracts 5% of the tax due or Ksh10,000 whichever is higher.
• Late filing of income tax company/partnership attracts a 5% of the tax due or Ksh20,000 whichever is higher.

Whether you are employed, self-employed, doing business or you recently worked and earned a salary, this is the time to file your tax returns and evade unnecessary penalties from the taxman. 

This article explores income tax returns and how you can file them. But first, let's understand what tax returns mean, and the steps in filing individual or company returns. 

What are tax returns?

Tax returns refer to a declaration of income earned by an individual, business or company within a particular financial period. This statement is used by tax authorities to assess liability for tax. 

Steps in Filing Tax Returns on KRA iTax

Individual tax returns

Whether you are employed, self-employed or unemployed you should file your tax returns, as long as you have a KRA PIN number which every individual above the age of 18 should have. 

Individual income taxes are filed depending on whether you have an employment income, or other sources of income.

Employment Income Only

For employment income only, the following steps are useful;

1. Login in to your iTax account - enter the URL address iTax.kra.go.ke or simply search for KRA Portal in your browser. 
2. Enter KRA PIN and click continue. 

You will be required to enter the password, solve the arithmetic to log in. Request a new password under the forgot password statement below the login tab if you have forgotten your password and follow the prompts. 

3. Once you log in, you will be redirected to the iTax homepage. Navigate to the returns menu and select ITR for Employment Income Only. 

Enter the return period, select tax obligation (Resident or Non-Resident Individual), check the ‘yes’ box to show you are employed and click next.

4. A new page will open. Fill in the return basic information and click next or select section F.Under section F, confirm the details of employment income i.e. employer’s PIN, your gross pay and other benefits.

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5. Move to section M and confirm details of PAYE deducted, employer details, Taxable Salary, Chargeable Pay, and Tax Payable. All these details are usually listed in the sheet as A, B, C, D, E… and can as well be found on your P9 form - a standard tax deduction form issued by the employer showing total emoluments for the tax year.

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6. If you paid income tax in advance, move to section Q and fill in the details. Otherwise, this step can be skipped to section T, where you provided tax computation details.

Fill in your defined pension for the year and personal relief according to the P9 form. Validate to get the tax due, submit and download the return acknowledgement certificate.

Filing Tax Returns Using the iTax Excel Sheet

1. Once you have logged in to the iTax portal/homepage, navigate to the returns tab. Click on File Returns. 
2. A new page will open prompting you to select your tax obligation. Click next and redirect to steps on downloading the excel sheet.
3. Go to the download files and locate the zipped iTax excel sheet. Open and fill in the required details as per your P9 form.
4. If you are self-employed or you have other sources of income, indicate in the sheet and file Withholding Tax, Rental Tax, Digital Tax, or Partnership Tax.
5. Once you have duly filled the sheet, validate it and upload the zipped file to the iTax portal. 
6. Select the type of tax (Original) or amended if you are doing corrections, return period from - the period to be populated - and choose the file from your computer, check the box to agree with iTax terms and click submit.

How to File KRA iTax Nil Returns

Nil returns are filed by individuals with KRA PIN but are not employed or do not have tax data for the return period under review. 

For instance, if you do not have tax information for the tax period starting January 1 to December 31, 2021, you will be required to file Nil returns. Note that failure to do so will also attract a penalty. 

Steps to Filing Nil Returns on KRA iTax

1. Once in the iTax portal, navigate to the returns tab and select File Nil Returns from the drop-down menu.
2. Select your tax obligation, return period from and the period to will be populated. Click submit and download the returns acknowledgement receipt.

Note, if you have any tax deducted even for one, two or three months, the iTax system will not generate the nil returns computations.

Company Returns

Company returns are filed after a company or business pays Corporation Tax, PAYE, Value Added Tax (VAT), Withholding Tax, or Digital Tax.

Company returns should be filed on or before the sixth month after the end of an accounting period. 

These returns are filed under the Income Tax Company Returns (IT2C) form available on iTax. 

How to Apply  for a Tax Refund From KRA on iTax

A tax refund is the reimbursement of excess tax paid within a given tax period. Taxpayers eligible for a tax refund include life or education insurance policyholders, mortgage facility homeowners, persons living with disability holding exemption certificates, taxpayers who pay withholding tax in excess of final liability and those who pay tax in error.

You will need a P9 form for claims related to excess PAYE tax or a insurance policy certificate, mortgage certificate, and withholding tax certificate. 

To apply for a refund, follow the following steps;

1. Log in to the iTax portal and navigate to the Refund tab and click Income tax from the dropdown menu.

2. A new page will open, prompting you to fill in the basic details, bank details and refund details. Under the refund details, give a reason you are applying for the refund and choose the required document from your PC and upload it. Click submit.

3. The claim will generate a refund acknowledgement number sent to your email address, which you can use to track your refund.

How to Make Corrections/Amendments to KRA Tax Returns on iTax

Sometimes when filing tax returns, you could make errors by entering wrong values in the sheet. This results in the wrong tax computation that you submit without noticing. To correct this, you should make corrections and file amended returns.

Steps;

1. On the return tab on iTax, select the File Amended Returns option on the dropdown menu. Select the tax obligation and the taxpayer type and PIN will be auto-populated, return the period you are amending and download the excel sheet.

2. Correct the required fields like the affected entries in the sheet, validate, upload back to iTax and submit. Download the amended return acknowledgement receipt.

WRAPPING UP

Paying tax is an individual obligation to grow and develop the country’s economy. Filing returns help the tax department in determining accountability and improving national revenue allocation. When you file your tax returns it means you are a responsible person.