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Introduction

In Kenya, consultants, like any other professionals, are subject to various taxes as stipulated by the Kenyan tax laws. The primary sources of these tax obligations include the Income Tax Act (Cap 470), the Value Added Tax Act (2013), and the Tax Procedures Act (2015). This comprehensive guide will outline the different types of taxes a consultant in Kenya is required to pay, the relevant legal provisions, and the procedures for compliance.

Income Tax
- 1.1 Personal Income Tax
- 1.2 Corporate Income Tax
- 1.3 Pay-As-You-Earn (PAYE)
Value Added Tax (VAT)
Withholding Tax
Turnover Tax (TOT)
Advance Tax
Conclusion

1. Income Tax

1.1 Personal Income Tax

Source: Income Tax Act (Cap 470), Sections 3, 5, and 6

Definition: Personal income tax is levied on the income of individuals, including consultants.
Taxable Income: This includes all earnings from consultancy services, whether received in cash or in kind.
Tax Rates: The rates are progressive, ranging from 10% to 30% based on the income brackets.
Filing: Consultants must file annual tax returns by 30th June of the following year.

1.2 Corporate Income Tax

Source: Income Tax Act (Cap 470), Sections 15 and 16

Definition: If a consultant operates through a registered company, the company is subject to corporate income tax.
Tax Rate: The standard corporate tax rate is 30% for resident companies and 37.5% for non-resident companies.
Deductions: Allowable deductions include business expenses directly related to the consultancy services.

1.3 Pay-As-You-Earn (PAYE)

Source: Income Tax Act (Cap 470), Section 37

Definition: PAYE is a method of collecting income tax from employees' salaries and wages.
Applicability: If a consultant employs staff, they are required to deduct PAYE from their employees' salaries and remit it to the Kenya Revenue Authority (KRA).
Rates: The rates are progressive, similar to personal income tax rates.

2. Value Added Tax (VAT)

Source: Value Added Tax Act (2013), Sections 5 and 6

Definition: VAT is a consumption tax levied on the value added to goods and services.
Applicability: Consultants providing taxable services must charge VAT on their services.
Registration: Consultants with an annual turnover exceeding Ksh 5 million must register for VAT.
Rate: The standard VAT rate is 16%, with some services qualifying for a reduced rate of 8% or being zero-rated.
Filing: VAT returns must be filed monthly by the 20th of the following month.

3. Withholding Tax

Source: Income Tax Act (Cap 470), Sections 35 and 36

Definition: Withholding tax is deducted at source on specific payments to residents and non-residents.
Applicability: Payments to consultants for professional services are subject to withholding tax.
Rates: The rate for residents is 5%, while for non-residents, it is 20%.
Filing: The tax must be remitted to the KRA by the 20th of the month following the payment.

4. Turnover Tax (TOT)

Source: Finance Act (2019), Section 12C

Definition: TOT is a simplified tax regime for small businesses with an annual turnover of between Ksh 1 million and Ksh 50 million.
Rate: The TOT rate is 1% of the gross monthly turnover.
Exemptions: Consultants registered for VAT are exempt from TOT.
Filing: TOT returns must be filed monthly by the 20th of the following month.

5. Advance Tax

Source: Income Tax Act (Cap 470), Section 12A

Definition: Advance tax is applicable to public service vehicles and commercial vehicles.
Applicability: If a consultant uses such vehicles for their business, they must pay advance tax.
Rates: The rates vary based on the type and capacity of the vehicle.
Filing: Advance tax is paid annually at the time of renewing the vehicle's road license.

Conclusion

Consultants in Kenya are subject to various taxes, including personal and corporate income tax, VAT, withholding tax, turnover tax, and advance tax. Compliance with these tax obligations is crucial to avoid penalties and interest. It is advisable for consultants to maintain accurate records and seek professional advice to ensure they meet all their tax obligations.

By understanding and adhering to these tax requirements, consultants can operate their businesses smoothly and contribute to the country's revenue collection efforts.