Income Taxcap 470 - as Plain Text by MWakili

LAWS OF KENYA The Income Tax acT Chapter 470 Revised Edition 2012 (2010) Published by the National Council for Law Reporting with the Authority of the Attorney General www.kenyalaw.org 2 [Rev.

2012 CAP.

470 Income Tax CHAPTER 470 THE INCOME TAX ACT ARRANGEMENT OF SECTIONS Section PART IPRElIMINARy 1Short title and commencement.

2Interpretation.

PART IIIMPOSITION OF INCOME TAx 3Charge of tax.

4Income from businesses.

4AIncome from businesses where foreign exchange loss or gain is realized.

4BExport processing zone enterprise.

5Income from employment, etc.

6Income from the use of property.

7Income from dividends.

7ADividend tax account.

8Income from pensions, etc.

9Income of certain non-resident persons deemed derived from Kenya.

10Income from management or professional fees, royalties, interest and rents.

11Certain income exempt from tax, etc.

12Imposition of installment tax.

12AImposition of advance tax.

12BImposition of Fringe Benet Tax.

12CImposition of turnover tax.

PART IIIExEMPTION FROM TAx 13Certain income exempt from tax, etc.

14Trust, income, etc., deemed income of trustee, beneciary, etc.

PART IVASCERTAINMENT OF TOTAl INCOME 15Deductions allowed.

16Deductions not allowed.

17Ascertainment of income of farmer in relation to stock.

18Ascertainment of gains or prots of business in relation to certain non-resident persons.

19Ascertainment of income of insurance companies.

Rev.

2012] Income Tax CAP.

470 3 19ACo-operative societies.

20Collective investment schemes.

21Members clubs and trade associations.

22Purchased annuities, other than retirement annuities, etc.

22ADeduction in respect of contributions to registered pension or provident funds.

22BDeductions in respect of contributions to individual retirement funds.

22CRegistered home ownership savings plan.

23Transactions designed to avoid liability to tax.

24Avoidance of tax liability by non-distribution of dividends.

25Income settled on children.

26Income from certain settlements deemed to be income of settlor.

27Accounting periods not coinciding with year of income, etc.

28Income and expenditure after cessation of business.

PART VPERSONAl RElIEF 29General.

30Personal relief.

31(Repealed.) 32(Repealed.) 33 (Repealed.) PART VIRATES, DEDuCTIONS AND SET-OFF OF TAx AND DOublE TAxATION RElIEF ARates of Tax 34Rates of tax.

34A(Repealed.) BDeduction of Tax 35Deduction of tax from certain income.

36Deduction of tax from annuities, etc., paid under a will, etc.

37Deductions of tax from emoluments.

37APenalty for failure to make deductions under section 35, 36 or 37.

38Application to Government.

CSet-off of Tax 39Set-off of tax.

39A(Repealed.) 4 [Rev.

2012 CAP.

470 Income Tax DDouble Taxation Relief 40(Repealed.) 41Special arrangements for relief from double taxation.

41A.Agreements for exchange of information.

42Computation of credits under special arrangements.

43Time limit.

PART VIIPERSONS ASSESSAblE 44Wifes income, etc.

45Income of a person assessed on him.

46Income of incapacitated person.

47Income of non-resident person.

48Income of deceased person, etc.

49Liability of joint trustees.

50Liability of person in whose name income of another person assessed.

51Indemnication of representatives.

51AReturns, records, etc.

to be in ofcial languages.

PART VIIIRETuRNS AND NOTICES 52Returns of income and notice of chargeability.

52A(Repealed.) 52BFinal return with self-assessment.

53Provisional returns.

54Documents to be included in return of income.

54AKeeping of records of receipts, expenses, etc.

55Books and accounts.

56Production and preservation of books, attendances, etc.

57Return as to salaries, pensions, etc.

58Returns as to fees, commissions, royalties, etc.

59Occupiers return of rent.

60Return of lodgers and inmates.

61Return of income received on account of other persons.

62Return as to income exempt from tax.

63Return in relation to settlements.

64Return in relation to registered pension fund, etc.

65Return of annuity contract benets.

66Return of resident company dividends.

67Return as to interest paid or credited by banks, etc.

68Return as to dividends paid by building societies.

69Access to ofcial information.

70Further returns and extension of time.

71Return deemed to be furnished by due authority.

72Additional tax in event of failure to furnish return or Rev.

2012] Income Tax CAP.

470 5 fraud in relation to a return.

72AOffences in respect of failure to furnish return or fraud in relation to a return.

72BPenalty for the negligence of authorized tax agent.

72CPenalty on underpayment of instalment tax.

72DPenalty on unpaid tax.

PART IxASSESSMENTS 73Assessments.

74Provisional assessments.

74AInstalment assessment.

74BMinimum additional tax or penalty.

75Assessment of person about to leave or having left Kenya.

75AAssessment in certain cases.

76Assessment not to be made on certain employees.

76AAssessment not to be made on certain income.

77Additional assessments.

78Service of notice of assessment, etc.

79Time limit for making assessments, etc.

80Assessment list.

81Errors, etc., in assessments or notices.

PART xObjECTIONS, APPEAlS AND RElIEF FOR MISTAkES 82Local committees.

83The Tribunal.

84Notice of objection to assessment.

85Powers of Commissioner on receipt of objection.

86Right of appeal from Commissioners determination of objection.

87Procedure on appeals.

88Finality of assessment.

89Application of appeal procedure to other decisions, etc., of Commissioner.

90Relief in respect of error or mistake.

91Rules for appeals to the Court.

91AAppeals to Court of Appeal.

PART xICOllECTION, RECOVERy AND REPAyMENT OF TAx 92Time within which payment to be made.

92ADue date for payment of tax under self-assessment.

93Payment of tax where notice of objection etc.

94Penalty and interest on unpaid tax.

95Interest on underestimated tax.

95A(Repealed.) 6 [Rev.

2012 CAP.

470 Income Tax 96Appointment and duties of agent.

96APreservation of funds.

97Deceased persons.

98Collection of tax from persons leaving or having left Kenya.

99(Repealed.) 100Collection of tax from guarantor.

101Collection of tax by suit.

102Collection of tax by distraint.

103Security on property for unpaid tax.

104Collection of tax from ship owner, etc.

105Refund of tax overpaid.

106Repayment of tax in respect of income accumulated under trusts.

PART xIIOFFENCES AND PENAlTIES 107General penalty.

108Additional penalties.

109Failure to comply with notice, etc.

110Incorrect returns, etc.

111Fraudulent returns, etc.

112Obstruction of ofcer.

113Evidence in cases of fraud, etc.

114Power of Commissioner to compound offences.

115Place of trial.

116Offences by corporate bodies.

117Ofcer may appear on prosecution.

118Tax charged to be payable notwithstanding prosecution.

119Power to search and seize.

120Power to inspect books and documents.

121Admissibility of evidence.

PART xIIIADMINISTRATION 122 Responsibility for administration, etc.

123Commissioners discretion to abandon or remit tax.

123AAmnesty for penalties and interest.

123BCommissioner to refrain from assessing tax in some cases.

124Exercise of powers, etc.

125Ofcial secrecy.

126Offences by or in relation to ofcers, etc.

PART xIVMISCEllANEOuS PROVISIONS 127Form of notices, etc.

127AApplication of information technology.

127BUsers of the tax computerized system.

Rev.

2012] Income Tax CAP.

470 7 127CCancellation of registration of registered user.

127DUnauthorized access to or improper use of tax computerized system.

127EInterference with tax computerized system.

127CCancellation of registration of registered user.

128Service of notices, etc.

129Liability of manager, etc., of corporate body.

130Rules.

131Exemption from stamp duty.

132Personal identication numbers.

133Repeals and transitional.

SCHEDULES FIRST SCHEDULEExemptions.

SECOND SCHEDULEDeductions in respect of capital expenditure on certain buildings.

THIRD SCHEDULERates of personal reliefs and tax.

FOURTH SCHEDULE(Repealed).

FIFTH SCHEDULEScheduled professions and scheduled qualications SIXTH SCHEDULETransitional provisions.

SEVENTH SCHEDULE(Repealed).

EIGHTH SCHEDULEAccrual and computation of gains from property other than investment shares transferred by individuals.

NINTH SCHEDULETaxation of petroleum companies.

TENTH SCHEDULEAgricultural produce and its authorised agents.

ELEVENTH SCHEDULETaxation of export processing zones enterprises.

TWELFTH SCHEDULEProvisions relating to instalment Tax.

THIRTEENTH SCHEDULETransactions for which personal identication number (PIN) will be required.

8 [Rev.

2012 CAP.

470 Income Tax 16 of 1973, 2 of 1975, CHAPTER 470 13 of 1975, 7 of 1976, THE INCOME TAX ACT 11 of 1976, L.N.

123/1976, Commencement: 1st January, 1974 L.N.189/1977, 12 of 1977, An Act of Parliament to make provision for the charge, assessment and 16 of 1977, collection of income tax: for the ascertainment of the income to be 8 of 1978, charged; for the administrative and general provisions relating 13 of 1978, thereto; and for matters incidental to and connected with the 13 of 1979, foregoing 18 of 1979, 10 of 1980, 12 of 1980, PART IPRElIMINARy 6 of 1981, 1 of 1982, 14 of 1982, 8 of 1983, 13 of 1984, 18 of 1984, 8 of 1985, 10 of 1986, 10 of 1987, 3 of 1988, 10 of 1988, 9 of 1989, 20 of 1989, 7 of 1990, 8 of 1991, 9 of 1992, 4 of 1993, 6 of 1994, 13 of 1995, 8 of 1996, 8 of 1997, 5 of 1998, 4 of 1999, 9 of 2000, 6 of 2001, 7 of 2002, 15 of 2003, 4 of 2004, 6 of 2005, 10 of 2006, 9 of 2007, 8 of 2009, 10 of 2010, 4 of 2012, 57 of 2012.

1.

This Act may be cited as the Income Tax Act and shall, subject Short title and to the Sixth Schedule, come into operation on 1st January, 1974, and commencement.

Rev.

2012] Income Tax CAP.

470 9 apply to assessments for the year of income 1974 and subsequent years of income.

2.

(1) In this Act, unless the context otherwise requires Interpretation.

7 of 1976, s.2, accounting period in relation to a person, means the period for 2 of 1977, s.

5, which that person makes up the accounts of his business; 8 of 1978, s.

9, 12 of 1980, s.

3, actuary means 14 of 1982, s.

16, 10 of 1987, s.

31, 10 of 1988, s.

28, (a) a Fellow of the Institute of Actuaries in England; or of 2 of 1990, s.

38, the Faculty of Actuaries in Scotland; or of the Society of 8 of 1991, s.

52, Actuaries in the United States of America;or of the Canadian 9 of 1992, s.

35, Institute of Actuaries; or 6 of 1994, s.

33, 13 of 1995, s.

73, (b) such other person having actuarial knowledge as the 8 of 1996, s.

27, Commissioner of Insurance may approve; 8 of 1997, s.

27, 4 of 1999, s.

32, 9 of 2000, s.

40, agency fees means payments made to a person for acting on 6 of 2001, s.

42, behalf of any other person or group of persons, or on behalf of the 7 of 2002, s.

37, Government and excludes any payments made by an agent on behalf 15 of 2003, s.

29, of a principal when such payments are recoverable; 4 of 2004, s.

45, 6 of 2005, s.

20, annuity contract means a contract providing for the payment of 10 of 2006, s.

16, an individual of a life annuity, and registered annuity contract means 8 of 2008, s.

23, one which has been registered with the Commissioner in such manner 8 of 2009, s.

16, as may be prescribed; 4 of 2012, s.

9, 57 of 2012, s.

13.

assessment means an assessment, instalment assessment, self- assessment, provisional assessment or additional assessment made under this Act; authorized tax agent means any person who prepares or advises for remuneration, or who employs one or more persons to prepare for remuneration, any return, statement or other document, with respect to a tax under this Act; and for the purposes of this Act, the preparation of a substantial portion of a return, statement or other document shall be deemed to be the preparation of the return, statement or other document; bank means a bank or nancial institution licensed under the Cap.

488.

Banking Act; building society means a building society registered under the Cap.

489.

Building Societies Act: and bearer means the person in possession of a bearer instrument; 10 [Rev.

2012 CAP.

470 Income Tax bearer instrument includes a certicate of deposit, bond, note or any similar instrument payable to the bearer; business includes any trade, profession or vocation, and every manufacture, adventure and concern in the nature of trade, but does not include employment; Cap.

485A collective investment scheme has the meaning assigned to it in section 2 of the Capital Markets Act; commercial vehicle means a road vehicle which the Commissioner is satised is (a) manufactured for the carriage of goods and so used in connection with a trade or business; or Cap.

403.

(b) a motor omnibus within the meaning of that term in the Trafc Act; or (c) used for the carriage of members of the public for hire or reward; Commissioner (a) the Commissioner-General appointed under section 11(1) Cap.

469.

of the Kenya Revenue Authority Act; or Cap.

469.

(b) with respect to powers or functions that have been delegated under section 11(4) of the Kenya Revenue Authority Act to another Commissioner, that other Commissioner; company means a company incorporated or registered under any law in force in Kenya or elsewhere; compensating tax means the addition to tax imposed under section 7A; consultancy fees means payments made to any person for acting in an advisory capacity or providing services on a consultancy basis; contract of service means an agreement, whether oral or in writing, whether expressed or implied, to employ or to serve as an employee for any period of time, and includes a contract of apprenticeship or indentured learnership, under which the employer has the power of selection and dismissal of the employee, pays his wages or salary and exercises general or specic control over the work done Rev.

2012] Income Tax CAP.

470 11 by him; and for the purpose of this denition an ofcer in the public service shall be deemed to be employed under a contract of service; corporation rate means the corporation rate of tax specied in paragraph 2 of Head B of the Third Schedule; Court means the High Court; current year of income, in relation to income charged to instalment tax, means the year of income for which the instalment tax is payable; debenture includes debenture stock, a mortgage, mortgage stock, or any similar instrument acknowledging indebtedness, secured on the assets of the person issuing the debenture; and, for the purposes of paragraphs (d) and (e) of section 7(1), includes a loan or loan stock, whether secured or unsecured; dened benet provision, in respect of a registered fund, means the terms of the fund under which benets in respect of each member of the fund are determined in any way other than that described in the denition of a dened contribution provision, dened benet registered fund means a registered fund that contains a dened benet provision, whether or not it also contains a dened contribution provision; dened contribution provision, in respect of a registered fund, means terms of the fund (a) which provide for separate account to be maintained in respect of each member, to which are credited contributions made to the fund by, or in respect of, the member and any other amounts allocated to the member, and to which are charged payments in respect of the member; and (b) under which the only benets in respect of a member are benets determined solely with reference to, and provided by, the amount of the members account; dened contribution registered fund means a registered fund under which the benets of a member are determined by a dened contribution provision, and does not contain a dened benet provision; director means (a) in relation to a body corporate the affairs of which are managed by a board of directors or similar body, a member 12 [Rev.

2012 CAP.

470 Income Tax of that board or similar body; (b) in relation to a body corporate the affairs of which are managed by a single director or similar person, that director or person; (c) in relation to a body corporate the affairs of which are managed by members themselves, a member of the body corporate, and includes any person in accordance with whose directions and instructions those persons are accustomed to act; discount means interest measured by the difference between the amount received on the sale, nal satisfaction or redemption of any debt, bond, loan, claim, obligation or other evidence of indebtedness, and the price paid on purchase or original issuance of the bond, or evidence of indebtedness or the sum originally loaned upon the creation of the loan, claim or other obligation; dividend means any distribution (whether in cash or property, and whether made before or during a winding up) by a company to its shareholders with respect to their equity interest in the company, other than distributions made in complete liquidation of the company of capital which was originally paid directly into the company in connection with the issuance of equity interests; due date means the date on or before which tax is due and payable under this Act or pursuant to a notice issued under this Act; employer includes any resident person responsible for the payment of, or on account of, emoluments to an employee, and an agent, manager or other representative so responsible in Kenya on behalf of a non-resident employer; export processing zone enterprise has the meaning assigned to it by the Export Processing Zones Act, 1990; foreign tax, in relation to income charged to tax in Kenya, means income tax or tax of a similar nature charged under any law in force in any place with the government of which a special arrangement has been made by the Government of Kenya and which is the subject of that arrangement; incapacitated person means a minor, or a person adjudged under any law, whether in Kenya or elsewhere, to be in a state of unsoundness of mind (however described); Rev.

2012] Income Tax CAP.

470 13 individual means a natural person; individual rates means the individual rates of income tax specied in paragraph 1 of Head B of the Third Schedule; individual retirement fund means a fund held in trust by a qualied institution for a resident individual for the purpose of receiving and investing funds in qualifying assets in order to provide pension benets for such an individual or the surviving dependants of such an individual subject to the Income Tax (Retirement Benet) Rules and registered individual retirement fund means an individual retirement fund where the trust deed for such a fund has been registered with the Commissioner; information technology means any equipment or software for use in storing, retrieving, processing or disseminating information; interest (other than interest charged on tax) means interest payable in any manner in respect of a loan, deposit, debt, claim or other right or obligation, and includes a premium or discount by way of interest and commitment or service fee paid in respect of any loan or credit; Kenya includes the continental shelf and any installation thereon Cap.

312.

as dened in the Continental Shelf Act; local committee means a local committee established under section 82; loss, in relation to gains or prots, means a loss computed in the same manner as gains or prots; Management Act means the East African Income Tax E.A.

Cap.24.

Management Act; management or professional fee means a payment made to a person, other than a payment made to an employee by his employer, as consideration for managerial, technical, agency, contractual, professional or consultancy services however calculated; National Social Security Fund means the National Social Security Fund established under Section 3 of the National Social Cap.258.

Security Fund Act; non-resident rate means a non-resident tax rate specied in paragraph 3 of Head B of the Third Schedule; 14 [Rev.

2012 CAP.

470 Income Tax notice of objection means a valid notice of objection to an assessment given under section 84(1); number of full-year members, in respect of a registered fund, means the sum of the periods of service in the year under the fund of all members of the fund, where the periods are expressed as fractions of a year; ofcer means the Commissioner and any other member of staff of the Kenya Revenue Authority appointed under section 13 of the Kenya Revenue Authority Act; original issue discount means the difference between the amount received on the nal satisfaction or redemption of any debt, bond, loan, claim, obligation or other evidence of indebtedness, and the price paid on original issuance of the bond or evidence of indebtedness or the sum originally loaned upon creation of the obligation, loan, claim or other obligation; paid includes distributed, credited, dealt with or deemed to have been paid in the interest or on behalf of a person; pension fund means a fund for the payment of pensions or other similar benets to employees on retirement, or to the dependants of employees on the death of those employees and registered pension fund means one which has been registered with the Commissioner in such manner as may be prescribed; pensionable income means (a) in relation to a member of a registered pension or provident fund or of an individual eligible to contribute to a registered individual retirement fund, the employment income specied in section 3 (2)(a)(ii) subjected to deduction of tax under section 37; (b) in the case of an individual eligible to contribute to a registered individual retirement fund, the gains or prots from business subject to tax under section 3 (2)(a)(i) earned as the sole proprietor or as a partner of the business: Provided that where a loss from business is realized the loss shall be deemed to be zero; permanent establishment in relation to a person means a xed place of business in which that person carries on business and for the purposes of this denition, a building site, or a construction or assembly Rev.

2012] Income Tax CAP.

470 15 project, which has existed for six months or more shall be deemed to be a xed place of business; permanent or semi-permanent crops means those crops which the Minister may, by notice in the Gazette, declare to be permanent or semi-permanent crops for the purposes of this Act; personal relief means (a) the personal relief provided for under part V; and (b) the relief mentioned in section 30; premises means land, any improvement thereon, and any building or, where part of a building is occupied as a separate dwelling- house, that part; provident fund includes a fund or scheme for the payment of lump sums and other similar benets, to employees when they leave employment or to the dependants of employees on the death of those employees but does not include a national provident fund or national social security fund established by the Government and registered provident fund means one which has been registered with the Commissioner in such manner as may be prescribed; provisional return of income means a provisional return of income furnished by a person under section 53, together with any documents required to be furnished therewith; public pension scheme means a pension scheme that pays pension or lump sums out of the Consolidated Fund; qualifying assets, in respect of a registered individual retirement fund, means time deposits, treasury bills, treasury bonds, securities traded on any securities exchange approved under the Capital Markets Cap.

485A.

Act and such other categories of assets as may be prescribed in the No.

3 of 1997.

investment guidelines issued under the Retirement Benets Act,1997; qualifying dividend means that part of the aggregate dividend that is chargeable to tax under section 3(2)(b) and which has not been otherwise exempted under any other provision of this Act, but shall not include a dividend paid by a designated co-operative society subject to tax under section 19A( 2) or 19A( 3); qualifying dividend rate of tax means the resident withholding tax rate in respect of a qualifying dividend specied in the Third Schedule; 16 [Rev.

2012 CAP.

470 Income Tax qualied institution means a bank licensed under the Banking Cap.488.

Act, or an insurer registered under the Insurance Act, or such other Cap.487.

nancial institution as may be approved under the Retirement Benets No.

3 of 1997.

Act, 1997; qualifying interest means the aggregate interest, discount or original issue discount receivable by a resident individual in any year of income from Cap.488.

(i) a bank or nancial institution licensed under the Bank- ing Act; or Cap.

489.

(ii) a Building Society registered under the Building Societies 8 of 1996.

Act which in the case of housing bonds has been approved by the Minister for the purposes of this Act; or (iii) the Central Bank of Kenya: Provided that (a) interest earned on an account held jointly by a husband and wife shall be deemed to be qualifying interest; and (b) in the case of housing bonds, the aggregate amount of interest shall not exceed three hundred thousand shillings; qualifying interest rate of tax means the resident withholding tax rate in respect of interest specied in paragraph 5 of the Third Schedule; Cap.

485 A real estate investment trust shall have the meaning assigned to it in the Capital Market Act; registered fund means a registered pension fund or a registered provident fund; registered home ownership savings plan means a savings plan established by an approved institution and registered with the Commissioner for receiving and holding funds in trust for depositors for the purpose of enabling individual depositors to purchase a permanent house; registered trust scheme means a trust scheme for the provision of retirement annuities which has been registered with the Commissioner in such manner as may be prescribed; registered unit trust means a unit trust registered by the Rev.

2012] Income Tax CAP.

470 17 Commissioner in such manner as may be prescribed; registered venture capital company means a venture capital company registered by the Commissioner in such manner as may be prescribed; resident, when applied in relation (a) to an individual, means (i) that he has a permanent home in Kenya and was present in Kenya for any period in a particular year of income under consideration; or (ii) that he has no permanent home in Kenya but (A) was present in Kenya for a period or periods amounting in the aggregate to 183 days or more in that year of income; or (B) 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; (b) to a body of persons, means (i) that the body is a company incorporated under a law of Kenya; or (ii) that the management and control of the affairs of the body was exercised in Kenya in a particular year of income under consideration; or (iii) that the body has been declared by the Minister by notice in the Gazette, to be resident in Kenya for any year of income; resident withholding rate means a rate of resident withholding tax specied in paragraph 5 of Head B of the Third Schedule ; retirement annuity means a retirement annuity payable under a registered annuity contract; return of income means a return of income furnished by a person consequent upon a notice served by the Commissioner under section 52, including a return of income together with a self-assessment of tax furnished to the Commissioner in accordance with the provisions of section 52B together with the documents required to be furnished therewith; 18 [Rev.

2012 CAP.

470 Income Tax Retirement Benets Authority means the Authority by that name established under the Retirements Benets Act, 1997; royalty means a payment made as a consideration for the use of or the right to use (a) the copyright of a literary, artistic or scientic work; or (b) a cinematograph lm, including lm or tape for radio or television broadcasting; or (c) a patent, trade mark, design or model, plan, formula or process; or (d) any industrial, commercial or scientic equipment, or for information concerning industrial, commercial or scientic equipment or experience, and gains derived from the sale or exchange of any right or property giving rise to that royalty; Cap.485A.

securities exchange has the meaning assigned to it in section 2 of the Capital Markets Authority Act; single relief means the relief mentioned in section 31; special arrangement means an arrangement for relief from double taxation having effect under section 41; specied mineral means a mineral which the Minister may, by notice in the Gazette, declare to be a specied mineral for the purposes of this Act; tax means the income tax charged under this Act; tax computerized system means any software or hardware for use in storing, retrieving, processing or disseminating information relating to tax; No.

2 of 1998.

telecommunication operator means a person licensed as such under the Kenya Information and Communications Act, 1998; total income means, in relation to a person, the aggregate amount of his income, other than income exempt from tax under Part III, chargeable to tax under Part II, as ascertained under Part IV; trade association means a body of persons which is an association of persons separately engaged in any business with the Rev.

2012] Income Tax CAP.

470 19 main object of safeguarding or promoting the business interests of those persons; training fee means a payment made in respect of a business or user training services designed to improve the work practices and efciency of an organization, and includes any payment in respect of incidental costs associated with the provision of such services; Tribunal means the tribunal established under section 83; unit holder, in relation to a unit trust, means the owner of an interest in the moneys, investments and other property which are for the time being subject to the trusts governing the unit trust, that interest being expressed in the number of units of which he is the owner; unit trust has the meaning assigned to it in section 2 of the Cap.485A.

Capital Markets Act; venture company means a company incorporated in Kenya in which a venture capital company has invested and which at the time of rst investment by the venture capital company has assets with a market value or annual turnover of less than ve hundred million Kenya shillings; whole time service director means a director of a company who is required to devote substantially the whole of his time to the service of that company in a managerial or technical capacity and is not the benecial owner of, or able, either directly or through the medium of other companies or by any other means, to control more than ve per cent of the share capital or voting power of that company; wifes employment income means gains or prots from employment arising from a contract of service which is chargeable to tax under section 3 (2) (a) (ii) and pensions, lump sums and withdrawals from a registered fund, public pension scheme or registered individual retirement fund which are chargeable to tax under section 3 (2) (c), of a woman living with her husband, excepting income derived by her as a trustee or manager of a settlement created by her husband the income of which is deemed under section 25 or 26 to be the income of the settler or income derived by her as an employee of (a) a partnership in which her husband is a partner; (b) her husband; or (c) a company, the voting power of which is held to the extent of twelve and one-half per cent or more at any time during the 20 [Rev.

2012 CAP.

470 Income Tax year of income by her or by her husband or by both jointly, either directly or through nominees; wifes professional income means the gains or prots of a married woman living with her husband derived from the exercise by her (but not as a partner of a partnership in which her husband is a partner) of one of the professions specied in the Fifth Schedule being also a person who has the qualications specied in that Schedule relevant to that profession; wifes professional income rate means the wifes professional income rate specied in paragraph 1A of Head B of the Third Schedule.

wifes self-employment income means gains or prots arising from a business of a married woman living with her husband which are chargeable to tax under section 3(2)(a)( i), but does not include any income derived from the provision of goods or services by her to a business, partnership or a company owned by or the voting power of which is held to the extent of twelve and one-half percent, or more at any one time during the year of income by her or her husband either directly or through nominee; wifes self-employment income rate means the wifes self- employment income rate specied in paragraph 1A of Head B of the Third Schedule; year of income means the period of twelve months commencing on 1st January in any year and ending on 31st December in that year.

(1A) Where under the provisions of this Act, any accounts, books of accounts or other records are required to be kept, such accounts, books or other records may be kept in written form or on micro-lm, magnetic tape or any other form of mechanical or electronic data retrieval mechanism.

(2) In relation to any year of income in respect of which an order Cap.

415 relating to Tax or personal reliefs has been made under the Provisional Collection of Taxes and Duties Act reference in this Act to rates of tax and personal reliefs shall, so long as the order remains in force, be construed as references to the rates or reliefs specied in that order;and if, after the order has ceased to have effect, the rates of tax and of personal reliefs in relation to that year of income as specied in this Act as amended are different from those referred to in the order, and assessments have already been made having regard to those rates in the order, then all necessary adjustments shall be made to the assessments to give effect to the rates of tax and of personal reliefs for that year of income as specied in this Act as amended for that year of income.

Rev.

2012] Income Tax CAP.

470 21 PART IIIMPOSITION OF INCOME TAx 3.

(1) Subject to, and in accordance with, this Act, a tax to be Charge of tax.

known as income tax shall be charged for each year of income upon all 13 of 1975, s.

2, the income of a person, whether resident or non-resident, which accrued 8 of 1978, s.

9, in or was derived from Kenya.

14 of 1982, s.

17, 13 of 1985, s.

74, (2) Subject to this Act, income upon which tax is chargeable under 10 of 1990, s.

39, this Act is income in respect of 13 of 1995, s.

74, 57 of 2012, s.

14.

(a) gains or prots from (i) a business, for whatever period of time carried on; (ii) employment or services rendered; (iii) a right granted to another person for use or occupation of property; (b) dividends or interest; (c) (i) a pension, charge or annuity; and (ii) any withdrawal from, or payments out of, a registered pension fund or a registered provident fund or a registered individual retirement fund; and (iii) any withdrawals from a registered home ownership savings plan.

(d) (Deleted by 14 of 1982, s.

17.); (e) an amount deemed to be the income of a person under this Act or by rules made under this Act; (f) gains accruing in the circumstances prescribed in, and computed in accordance with, the Eighth Schedule.

(g) the amount or value of the consideration from the sale of property or shares in respect of oil companies, mining companies or mineral prospecting companies.

(3) For the purposes of this section (a) person does not include a partnership; and (b) a bonus or interest paid by a designated co-operative 22 [Rev.

2012 CAP.

470 Income Tax society, as dened under section 19A, shall be deemed to be a dividend.

(c) sale of property or shares includes the assignment of rights, sale of companies and businesses, and takeovers or any other non- inventory assets.

Income from 4.

For the purposes of section 3 (2) (a) (i) businesses.

18 of 1984, s.

2, (a) where a business is carried on or exercised partly within and 8 of 2009, s.

17, partly outside Kenya by a resident person, the whole of the 4 of 2012, s.

10.

gains or prots from that business shall be deemed to have accrued in or to have been derived from Kenya; (b) the gains or prots of a partnership shall be the sum of (i) remuneration payable to him by the partnership together with interest on capital so payable, less interest on capital payable by him to the partnership; and (ii) his share of the total income of the partnership, calculated after deducting the total of any remuneration and inter- est on capital payable to any partner by the partnership and after adding any interest on capital payable by any partner to the partnership, and where the partnership makes a loss, calculated in the manner set out in subparagraph (ii), his gains or prots shall be the excess, if any, of the amount set out in sub- paragraph (i) over his share of that loss: Provided that in computing the total income of a partner- ship, there shall be deducted the cost of medical expenses or medical insurance cover paid by the partnership for the benet of any partner, subject to a limit of one million shillings per year.

(c) a sum received under an insurance against loss of prots, or received by way of damages or compensation for loss of prots, shall be deemed to be gains or prots of the year of income in which it is received; (d) where in computing gains or prots for a year of income any expenditure or loss has been deducted, or a deduction in respect of any reserve or provision to meet any liability has been made, and in a later year of income the whole or part of Rev.

2012] Income Tax CAP.

470 23 that expenditure or loss is recovered, or the whole or part of that liability is released, or the retention in whole or in part of that reserve or provision has become unnecessary, then any sum so recovered or released or no longer required as a reserve or provision shall be deemed to be gains or prots of the year of income in which it is recovered or released or no longer required: Provided that if the person so chargeable with tax in respect of any such sum requests the Commissioner in writing to exercise his power under this proviso, the Commissioner may divide the sum into as many equal portions, not exceeding six, as he may consider t, and one such portion shall be taken into account in computing the gains or prots of that person for the year of income in respect of which the sum is so deemed to be gains or prots and for each of the previous years of income corresponding to the number of portions; (e) where under the Second Schedule it is provided that a balancing charge shall be made, or a sum shall be treated as a trading receipt, for any year of income, the amount thereof shall be deemed to be gains or prots of that year of income.

(f) in computing the gains or prots of a petroleum company or a petroleum service subcontractor, as those expressions are dened in the Ninth Schedule, the provisions of that Schedule shall apply.

4A.

(1) A foreign exchange gain or loss realized on or after 1st Income from January, 1989 in a business carried on in Kenya shall be taken into businesses where account as a trading receipt or deductible expenses in computing the foreign exchange gain or loss is gains and prots of that business for the year of income in which that realized.

gain or loss was realized: 10 of 1988, s.

29, Provided that 10 of 1990, s.

40, 8 of 2008, s.

24, (i) no foreign exchange gain or loss shall be taken into ac- 8 of 2009, s.18.

count to the extent that taking that foreign exchange gain or loss into account would duplicate the amounts of gain or loss accrued in any prior year of income; and (ii) the foreign exchange loss shall be deferred (and not taken into account) (a) where the foreign exchange loss is realized by a company with respect to a loan from a person who, alone or together with four or fewer other persons, is in control of that 24 [Rev.

2012 CAP.

470 Income Tax company and the highest amount of all loans by that company outstanding at any time during the year of income is more than three times the sum of revenue reserves (retained earnings) and the issued and paid up capital of all classes of shares of the company; or (b) to the extent of any foreign exchange gain that would be realized if all foreign currency assets and liabilities of the business were disposed of or satised on the last day of the year of income and any foreign exchange loss so deferred shall be deemed realized in the next succeeding year of income.

1A.

For the avoidance of doubt, accumulated losses shall be taken into account in computing the amount of revenue reserves.

(2) The amount of foreign exchange gain or loss shall be calculated in accordance with the difference between (a times r1) and (a times r2) where a is the amount of foreign currency received, paid or otherwise computed with respect to a foreign currency asset or liability in the transaction in which the foreign exchange gain or loss is realized; 1r is the applicable rate of exchange for that foreign currency (a) at the date of the transaction in which the foreign exchange gain or loss is realized.

2r is the applicable rate of exchange for that foreign currency (a) at the date on which the foreign currency asset or liability was obtained or established or on the 30th December, 1988, whichever date is the later.

(3) For the purposes of this section, no foreign exchange loss shall be deemed to be realized where a foreign currency asset or liability is disposed of or satised and within a period of sixty days a substantially similar foreign currency asset or liability is obtained or established.

(4) For the purposes of this section foreign currency asset or liability means an asset or liability denominated in, or the amount of which is otherwise determined by reference to, a currency other than the Kenya Shilling; control shall have the meaning ascribed to it in paragraph 32(1) of the Second Schedule; Rev.

2012] Income Tax CAP.

470 25 company does not include a bank or a nancial institution Cap.

488.

licensed under the Banking Act.

all loans shall have the meaning assigned in section 16(3).

4B.

Where a business is carried on by an export processing zone Export processing enterprise, the provisions of the Eleventh Schedule shall apply.

zone enterprise.

5.

(1) For the purposes of section 3(2) (a) (ii), an amount paid to Income from employment, etc.

(a) a person who is, or was at the time of the employment or 8 of 1978, s.

9, when the services were rendered, a resident person in respect 13 of 1979, s.

5, of any employment or services rendered by him in Kenya 10 of 1987, s.

32, or outside Kenya; or 9 of 1989, s.

17, 8 of 1996, s.

28, (b) a non-resident person in respect of any employment with or 5 of 1998, s.

43, services rendered to an employer who is resident in Kenya 6 of 2001, s.

28, or the permanent establishment in Kenya of an employer 7 of 2002, s.

38, 15 of 2003, s.

30, who is not so resident, 6 of 2005, s.

21, 10 of 2006, s.17, shall be deemed to have accrued in or to have been derived 9 of 2007, s.

18, from Kenya.

8 of 2008, s.

25, 10 of 2010, s.

21, (2) For the purposes of section 3(2) (a) (ii), gains or prots 4 of 2012, s.

11.

includes (a) wages, salary, leaves pay, sick pay, payment in lieu of leave, fees, commission, bonus, gratuity, or subsistence, travelling, entertainment or other allowance received in respect of employment or services rendered and any amount so received in respect of employment or services rendered in a year of income other than the year of income in which it is received shall be deemed to be income in respect of that other year of income: Provided that (i) where such an amount is received in respect of a year of income which expired earlier than four years prior to the year of income in which it was received, or prior to the year of income in which the employment or services ceased, if earlier, it shall be deemed to be income of the year of income which expired ve years prior to the year of income in which it was received, or prior to the year of income in which the employment or services ceased; and 26 [Rev.

2012 CAP.

470 Income Tax (ii) where the Commissioner is satised that subsistence, travelling, entertainment or other allowance represents solely the reimbursement to the recipient of an amount expended by him wholly and exclusively in the pro- duction of his income from the employment or service rendered then the calculation of the gains or prots of the recipient shall exclude that allowance or expenditure; (iii) Notwithstanding the provisions of subparagraph (ii), where such amount is received by an employee as pay- ment of subsistence, traveling, entertainment or other allowance, in respect of a period spent outside his usual place of work while on ofcial duties, the rst two thou- sand shillings per day expended by him for the duration of that period shall be deemed to be reimbursement of the amount so expended and shall be excluded in the calculation of his gains or prots; (b) save as otherwise expressly provided in this section, the value of a benet, advantage, or facility of whatsoever nature the aggregate value whereof is not less than thirty- six thousand shillings, granted in respect of employment or services rendered; (c) an amount received as compensation for the termination of a contract of employment or service, whether or not provision is made in the contract for the payment of that compensation: Provided that, except in the case of a director, other than a whole time service director, of a company the directors whereof have a controlling interest therein (i) where the contract is for a specied term, any amount received as compensation on the termination of the con- tract shall be deemed to have accrued evenly over the unexpired period of the contract; (ii) where the contract is for an unspecied term and pro- vides for compensation on the termination thereof, the compensation shall be deemed to have accrued in the period immediately following the termination at a rate equal to the rate per annum of the gains or prots from the contract received immediately prior to termination; (iii) where the contract is for an unspecied term and does not provide for compensation on the termination thereof, any compensation paid on the termination of the contract Rev.

2012] Income Tax CAP.

470 27 shall be deemed to have accrued evenly in the three years immediately following such termination.

(d) any balancing charge under Part II of the Second Schedule; (e) the value of premises provided by an employer for occupation by his employee for residential purposes; (f) an amount paid by an employer as a premium for an insurance on the life of his employee and for the benet of that employee or any of his dependants other than such an amount paid to a registered or unregistered pension scheme, pension fund, provident fund or individual retirement fund; (g) (Deleted by 6 of 1994, s.

34.).

(2A) (a) Where an individual is a director or an employee or is a relative of a director or an employee and has received a loan including a loan from an unregistered pension or provident fund by virtue of his position as director or his employment or the employment of the person to whom he is related, he shall be deemed to have received a benet in that year of income equal to the greater of (i) the difference between the interest that would have been payable on the loan received if calculated at the prescribed rate of interest and the actual interest paid on the loan; and (ii) Zero; Provided that where the term of the loan extends for a period beyond the date of termination of employment, the provisions of this subsection shall continue to apply for as long as the loan remains unpaid; (b) For the purposes of this subsection prescribed rate of interest means the following (i) in the year of income commencing on the 1st January, 1990, 6 per cent; (ii) in the year of income commencing on the 1st January, 1991, 8 per cent; (iii) in the year of income commencing on the 1st January 1992, 10 per cent; 28 [Rev.

2012 CAP.

470 Income Tax (iv) in the year of income commencing on the 1st January, 1993, 12 per cent; (v) in the year of income commencing on the 1st January, 1994, 15 per cent; and (vi) In the year of income commencing on or after 1st Janu- ary 1995, 15% or such interest rate based on the market lending rates as the Commissioner may from time to time prescribe, to cover a period of not less than six months but not more than one year, whichever is the lower.

(2B) Where an employee is provided with a motor vehicle by his employer, he shall be deemed to have received a benet in that year of income equal to the higher of (a) such value as the Commissioner may, from time to time determine; and (b) the prescribed rate of benet.

Provided that (i) where such vehicle is hired or leased from a third party, the employee shall be deemed to have received a ben- et in that year of income equal to the cost of hiring or leasing; or (ii) where an employee has restricted use of such motor vehicle, the Commissioner shall, if satised of that fact upon proof by the employee, determine a lower rate of benet depending on the usage of the motor vehicle.

(2C) For the purposes of subsection (2B) prescribed rate of benet means the following rates in respect of each month (a) in 1996 year of income, 1% of the initial capital expenditure on the vehicle by the employer; (b) in 1997 year of income, 1.5 % of the initial capital expenditure on the vehicle by the employer; and (c) in 1998 and subsequent years of income, 2 % of the initial expenditure on the vehicle by the employer.

Rev.

2012] Income Tax CAP.

470 29 (3) For the purposes of subsection (2)(e), the value of premises, excluding the value of any furniture or other contents so provided, shall be deemed to be (a) in the case of a director of a company, other than a whole time service director, an amount equal to the higher of fteen per centum of his total income excluding the value of those premises and income which is chargeable under section 3(2) (f), the market rental value and the rent paid by the employer; Provided that (i) where the premises are provided under an agreement with a third party which is not at arms length, the value of the premises determined under this subsection shall be the fair market rental value of the premises in that year or the rent paid by the employer, whichever is the higher; or (ii) where the premises are owned by the employer, the fair market rental value of the premises in that year; (b) in the case of a whole time service director, an amount equal to the higher of fteen per centum of the gains or prots from his employment, excluding the value of those premises and income which is chargeable under section 3 (2)(f), the market rental value and the rent paid by the employer; Provided that (i) where the premises are provided under an agreement with a third party which is not at arms length, the value of the premises determined under this subsection shall be the fair market rental value of the premises in that year or the rent paid by the employer whichever is the higher; or (ii) where the premises are owned by the employer, the fair market rental value of the premises in that year; (c) in the case of an agricultural employee required by the terms of employment to reside on a plantation or farm, an amount equal to ten per centum of the gains or prots from his employment; Provided that for the purposes of this paragraph (i) plantation shall not include a forest or timber planta- 30 [Rev.

2012 CAP.

470 Income Tax tion: and (ii) agricultural employee shall not include a director other than a whole time service director: (d) in the case of any other employee, an amount equal to fteen per centum of the gains or prots from his employment, excluding the value of those premises, or the rent paid by the employer if paid under an agreement made at arms length with a third party, whichever is the higher: Provided that (i) where the premises are provided under an agreement with a third party which is not at arms length, the value of the premises determined under this subsection shall be the fair market rental value of the premises in that year, or the rent paid by the employer, whichever is the higher; or (ii) where the premises are owned by the employer, the fair market rental value of the premises that year.

(4) Notwithstanding anything to the contrary in subsection (2) gains or prots do not include (a) the expenditure on passages between Kenya and any place outside Kenya borne by the employer: Provided that this paragraph shall not apply to expenditure other than expenditure on the provision of passages for the benet of an employee recruited or engaged outside Kenya and who is in Kenya solely for the purpose of serving the employer and is not a citizen of Kenya; (b) in the case of a full-time employee (which expression includes a whole time service director, or a director who controls more than ve percent of the share capital or voting power of a company) the value of any medical services provided by the employer or medical insurance provided by an insurance provider approved by the Commissioner of Insurance and paid for by the employer on behalf of a full- time employee or his beneciaries.

Provided that in the case of a director other than a whole time service director, the value of the services shall be subject to such limit as the Minister may, from time to time, prescribe.

Rev.

2012] Income Tax CAP.

470 31 (c) an amount paid by the employer as a contribution to a registered or unregistered pension fund, provident fund, individual retirement fund or scheme; Provided that this paragraph shall not apply to any contributions paid by an employer who is not a person chargeable to tax (i) to an unregistered pension scheme, unregistered provident fund or unregistered individual retirement fund; or (ii) to a registered pension scheme, a registered provident fund or a registered individual retirement fund in excess of the amount specied in section 22A or 22B.

(d) educational fees of employees dependants or relatives disallowed under section 16(2)(a) (iv) which have been taxed in the hands of the employer; (e) fringe benets subject to tax under Section 12B.

(f) the value of meals served to low income employees in a canteen or cafeteria operated or established by the employer (whether the meals are supplied by the employer or not) within his premises, subject to such conditions as the Commissioner may specify; Provided that for the purposes of this paragraph, low income employee means an employee who is not a member of the management staff of the employer.

(g) an amount paid by an employer as a gratuity or similar payment in respect of employment or services rendered, which is paid into a registered pension scheme: Provided that (a) this paragraph shall only apply in respect of amounts not exceeding two hundred and forty thousand shillings for each year of service; (b) this paragraph shall not apply to any person who is eligible for deductions under section 22A.

(h) For the purposes of this subsection, low income employee means an employee whose taxable income is not subject to tax at the rate of more than twenty percent under Head B of 32 [Rev.

2012 CAP.

470 Income Tax the Third Schedule to this Act.

(5) Notwithstanding any other provision of this Act, the value of the benet (excluding the value of premises as determined under subsection (3) and the value of benet determined under subsection (2B))for the purposes of this section, shall be the higher of the cost to the employer or the fair market value of the benet: Provided that (a) in the case of an employee share ownership plan, the value of the benet shall be the difference between the market value, per share, and the offer price, per share, at the date the option is granted by the employer; and (b) the Commissioner may, from time to time, prescribe the value where the cost or the fair market value of a benet cannot be determined.

(6) For the purposes of paragraph (a) of the proviso to subsection (5) (a) the benets chargeable shall accrue where such plan is registered with the Commissioner as a collective investment Cap.485A.

scheme within the meaning of Capital Markets Act and shall be deemed to have accrued to the employee at the end of the vesting period.

(b) offer price means the price at which an employers shares are initially offered to an employee under an employee share ownership plan; (c) market value, in relation to a share, means (i) where the shares are fully listed on any securities ex- changed operating in Kenya, the mid-market value on the date the shares were granted by the employer; or (ii) where the shares are not fully listed, the price which the shares might reasonably be expected to fetch on sale in the open market, which shall be agreed upon with the Commissioner before the grant of the options; (d) share option means the offer made by an employer to an employee to purchase a xed number of shares at a xed price, which may be paid for at the end of the vesting period; Rev.

2012] Income Tax CAP.

470 33 (e) vesting period means a xed period of time between the date of offer by the employer and the date after which the option to purchase can be exercised by the employee.

6.

(1) For the purposes of section 3(2)(a) (iii), gains or prots Income from the use includes a royalty, rent, premium or similar consideration received for of property.

the use or occupation of property.

8 of 1997 (2) In the case of a lease or similar transaction, the income of a lessor shall be determined in accordance with such rules as may be prescribed under this Act.

7.

(1) For the purposes of section 3(2)(b) Income from dividends.

(a) (Deleted by 8 of 1978.

s.

9.); 2 of 1975, s.

5, 8 of 1978, s.

9, (b) a dividend paid by a resident company shall be deemed to 9 of 1992, s.

38.

be income of the year of income in which it was payable; (c) when, in relation to a company that is being wound up voluntarily, prots (including prots realized on the disposition of assets of the company) whether earned before or during the winding up are distributed (whether in cash or otherwise), the distribution shall be deemed to be payment of a dividend; (d) where a company issues debentures or redeemable preference shares to any of its shareholders and receives therefore no payment, the issue of those debentures or redeemable preference shares shall be deemed to be a payment of a dividend on the shares held by the shareholders of an amount equal to the nominal value or redeemable value, whichever is the greater, of the debentures or redeemable preference shares; (e) where a company issues debentures or redeemable preference shares to any of its shareholders for a sum less than their nominal value or redeemable value whichever is the greater, the issue of those debentures or redeemable preference shares shall be deemed to include a payment of a dividend on the shares held by the shareholders of an amount equal to the excess: Provided that this paragraph shall not apply if the sum paid for the debentures or redeemable preference shares is ninety- ve per cent or more of their nominal value or redeemable value, whichever is the greater; 34 [Rev.

2012 CAP.

470 Income Tax (f) where a company issues ordinary or any other shares or rights to acquire shares to any of its shareholders in respect of their existing shares in a ration not proportionate to their holding of the existing equity, such distribution shall be treated as a dividend to the recipient shareholders to the extent of the value of the proportionate increase in their ownership of the company.

(2) Notwithstanding section 3(2)(b), a dividend received by a resident company, other than a dividend received by a company which controls directly or indirectly less than twelve and one-half percent of the voting power of the company paying the dividend, shall be deemed not to be income chargeable to tax.

(3) A dividend received as income under section 3(2)(a)(i) by the nancial institutions specied in the Fourth Schedule shall be deemed to be income chargeable to tax in accordance with this section.

Dividend tax 7A.

(1) A company resident in Kenya shall establish and maintain account.

a dividend tax account in accordance with this Act.

9 of 1992, s.

39, 4 of 1993, s.

39, (2) The initial amount in the dividend tax account shall be 8 of 1997, s.

30, established in accordance with subsection (6) and the balance of the 9 of 2000, s.

41, 8 of 2009, s.19.

dividend tax account as of the due date for ling a return of income as dened in section 52B shall be carried forward to the subsequent year of income.

(3) The dividend tax account shall be increased for accounting periods for the years of income commencing in or after 1993 as follows (a) by one shilling for every shilling of income tax paid by the company, excluding any nal withholding tax paid on qualifying dividends received by the company, after the commencement of the accounting period in respect of years of income commencing in or after 1988; (b) by one shilling for every shilling of compensating tax paid by the company, as provided in subsection (5); (c) (Deleted by 8 of 2009, s.

19.); (d) in the case of dividends received by the company from another company one shilling multiplied by the fraction equal to t/(lt) times one shilling for every one shilling of such dividends received in accounting periods for years of income Rev.

2012] Income Tax CAP.

470 35 commencing in or after 1993 (where t is a percentage equal to the current corporation rate for the company).

(4) The dividend tax account shall be decreased by an amount equal to t/(lt) times one shilling for every one shilling paid by the company as dividends to its shareholders in accounting periods for years of income commencing in or after 1993 where such dividends are declared with respect to accounting periods for years of income commencing in or after 1988.

(5) If the amount of the dividend tax account would be decreased below zero in any instance as a result of the deduction required under subsection (4), the company shall pay compensating tax with respect to the accounting period in which the dividend causing the negative balance is paid in an amount sufcient to bring such a resulting negative balance up to zero.

(6) The initial balance in the dividend tax account shall, at the election of the company, be made upon ling of a self- assessment return for the accounting period for the year of income 1993 and be either (a) zero; or (b) an amount equal to the sum of all taxes paid by the company prior to the accounting period for the year of income 1993 in respect of accounting periods for the years of income commencing in or after 1988 (other than nal withholding tax on qualifying dividends), and an amount equal to t/ (lt) times all dividends received from another company during accounting periods for years of income 1988 to 1992 less an amount equal to t/ (l-t) times the amount of all dividends actually paid by the company during the accounting periods for the years of income 1988 to 1992 (and not with respect to any prior years), where t is equal to the corporation rate of tax for the year of income 1993.

(7) For the purposes of this section, gains from trading in venture company shares which are exempt from tax under the First Schedule shall be treated as dividends.

36 [Rev.

2012 CAP.

470 Income Tax Income from 8.

(1) For the purposes of section 3 (2) (c), a pension received by pensions, etc.

a resident individual from a pension fund or pension scheme established 2 of 1975, s.

5, outside Kenya shall be deemed to have accrued in or to have been 8 of 1985, s.

11, derived from Kenya to the extent to which it relates to employment 12 of 1990, s.

42, or services rendered by the individual, or the husband or parent of the 4 of 1993, s.

39, individual, in Kenya and the amount so derived shall be the proportion 8 of 1996, s.

29, of the total pension which the length of the employment or services 6 of 2001, s.

44, in Kenya, including periods of leave earned thereby, bears to the total 7 of 2002, s.

39 length of employment or services in respect of which the pension is paid.

15 of 2003, s.

31, 4 of 2004, s.

47, 6 of 2005, s.

22, (2) For the purposes of this Act, a pension or retirement annuity 8 of 2009, s.

20.

received by a non-resident individual from a pension fund or pension scheme established in Kenya or under an annuity contract made in Kenya shall be deemed to have accrued in or to have been derived from Kenya.

(3) For the purposes of this Act, a pension received in respect of employment or by services rendered to the Community or one of its corporations shall be deemed to have accrued in or to have been derived from Kenya (a) if received by a resident individual; or (b) if received by non-resident individual if the person making payment of the pension was resident in Kenya.

(4) Notwithstanding section 3 (2) (c), the rst three hundred thousand shillings of the total pensions and retirement annuities received by a resident individual from a registered fund or the National Social Security Fund in a year of income shall be deemed to be income not charged to tax.

(5) Notwithstanding section 3 (2) (c), the following sums shall, subject to such rules as the Commissioner may prescribe, be deemed to be income not chargeable to tax (a) in the case of a lump sum commuted from a registered pension or individual retirement fund, the rst six hundred thousand shillings; or (b) in the case of a withdrawal from a registered pension or individual retirement fund upon termination of employ- ment, the lesser of (i) the rst sixty thousand shillings per full year of pen- sionable service with that employer starting on the later of the date the pensionable service began, or where the em- ployee had previously received a lump sum payment from Rev.

2012] Income Tax CAP.

470 37 that same employer, the date the employees pensionable service recommenced after receipt of that lump sum; or (ii) the rst six hundred thousand shillings; or (c) in the case of a lump sum paid out of a registered provident fund (or dened contribution registered fund deemed by the Commissioner to be a provident fund for the purposes of assessing under this paragraph accumulations for the payment of lump sums other than out of a pension), the total of (i) the lesser of the rst six hundred thousand shillings or the rst sixty thousand shillings per full year of pensionable service with that employer starting on the later of the date the pensionable service began or, where the employee had previously received a lump sum payment from that same employer, the date the employees pensionable service recommenced after receipt of that lump sum; and (ii) where the registered fund receives no further contribu- tions after 1990 year of income, or where the accumulated funds based on contributions prior to the 1st January, 1991 and contributions after the 31st December, 1990 are segregated, all lump sum payments based on the contributions made prior to 1st January, 1991, or, in any other case, all benets based on amounts accumulated in the fund on the 31st December, 1990: Provided that the trustees or provident fund managers shall have informed the Commissioner in writing by 31st December, 1991 of the accumulated balances and the members of the provident funds as of 31st December, 1990, the names of the registered funds, the names and addresses of such members, the name and address of their employer, and whether the registered provident fund has ceased receiving contributions as of 1st January, 1991 or whether the registered provident fund has segregated its funds; (d) in the case of a benet paid out of the National Social Security Fund, the rst six hundred thousand shillings; and (e) in the case of a lump sum paid out of a registered home ownership savings plan, the amount used for the purchase of an interest in or for the construction of a permanent house for occupation by the depositor within twelve months immediately following the year of withdrawal.

38 [Rev.

2012 CAP.

470 Income Tax (f) the total pensions and retirement annuities received by a resident individual from an unregistered pension or individual retirement fund or scheme: (i) the contributions to which have not been allowed as a deduction under any other provisions of this Act; and (ii) the income thereof has been taxed.

(5A) For the purposes of subsection 5(c)( ii), accumulated funds are segregated where (a) the accumulated funds based on contributions prior to the 1st January, 1991 are accounted for separately from contributions after 31st December, 1990; and (b) the net accumulated funds on each account earn the average rate of return on all the assets in the fund at the accounting date for a year of income; and (c) the net accumulated funds based on contributions prior to 1st January, 1991, are made up of the accumulated balances as at 31st December, 1990 less any withdrawals from the fund plus any investment income earned on the fund up to the accounting date for a year of income.

(6) Upon the death of an employee who is a member or beneciary of a registered fund (a) the widow, widower or dependants shall qualify as a group for the same tax exempt amounts out of pension income and lump sums as are available under subsections (4) and (5) respectively as if such amounts had been received by the employee; and (b) where the registered fund provides for no payment of retirement benets other than the payment of a lump sum to an estate, the rst one million four hundred thousand shillings of such a lump sum payment shall be deemed to be income not chargeable to tax as income of the estate or its direct beneciaries.

(7) Upon the death of the beneciary of a registered individual retirement fund or registered home ownership savings plan, the balance of funds shall be deemed to have been withdrawn immediately preceding the time of his death and shall be included in his income for that year, Rev.

2012] Income Tax CAP.

470 39 except (a) where such funds have been bequeathed to the spouse, the ownership of the fund may be transferred to the spouse; or (b) where funds are bequeathed to his children under the age of eighteen years at the time of his death, such funds shall be included in the income of such children; (c) where the funds of a depositor under a registered home ownership savings plan are bequeathed to another depositor, the funds may be transferred to that depositor.

(8) Upon dissolution of the marriage of the beneciary of a registered individual retirement fund or registered home ownership savings plan, as part of a written agreement, all or part of the balance of funds of that beneciary may be transferred to a registered individual retirement fund or registered house ownership savings plan in the name of the former spouse of that beneciary.

(9) Where the Commissioner determines that an individual retirement fund no longer complies with the registration rules, the fund shall be deemed to be no longer an individual retirement fund and the balance of the fund shall be included in the income of the beneciary in the year of income in which the fund ceased to comply with the rules (9A) Where the Commissioner withdraws the registration of a home ownership savings plan, then the balance of the funds held in each depositors account shall be included in that depositors income with effect from the beginning of the year of income in which the grounds for the withdrawal arose, except where such funds are transferred to a similar plan in an approved institution within twelve months of the withdrawal of the registration with the prior written approval of the Commissioner in which case such funds shall not be included in the depositors income.

(10) For the purposes of this section (a) pension and lump sums paid from a public pension scheme, shall be deemed to be received from a registered pension fund or registered provident fund, as the case may be; (b) any surplus funds in respect of a registered pension fund or a registered provident fund withdrawn by or refunded to an employer shall be deemed to be the income of that employer.

40 [Rev.

2012 CAP.

470 Income Tax (11) In subsection (10) the expression surplus funds means surplus funds identied through an actuarial valuation carried out in accordance with this Act or any rules made thereunder.

Income of certain 9.

(1) Where a non-resident person carries on the business of non-resident persons shipowner, charterer or air transport operator and a ship or aircraft deemed derived from owned or chartered by him calls at any port or airport in Kenya, the Kenya.

10 of 2006, s.

18, gains or prots from that business from the carriage of passengers who 9 of 2007, s.

19.

embark, or cargo or mail which is embarked, in Kenya shall be the gross amount received on account of the carriage and those gains or prots shall be deemed to be income derived from Kenya; but this subsection shall not apply to gains or prots from the carriage of passengers who embark, or cargo or mail which is embarked, in Kenya solely as a result of transshipment.

(2) Where a non-resident person carries on, in Kenya, the business of transmitting messages by cable, radio, optical bre, television broadcasting, Very Small Aperture Terminal (VSAT), internet, satellite or by any other similar method of communication, then the gains and prots from the business shall be the gross amount received for the transmission of messages which are transmitted by the apparatus established in or outside Kenya, whether or not those messages originate from Kenya, and such gains and prots shall be deemed to be income derived from Kenya.

Income from 10.

For the purposes of this Act, where a resident person or a management or person having a permanent establishment in Kenya makes a payment professional fees, to any other person in respect of royalties, interest and rents.

(a) a management or professional fee; 13 of 1975, s.

2, 8 of 2009, s.

21, (b) a royalty; 4 of 2012, s.

12, 57 of 2012, s.

15 (c) interest and deemed interest; (d) the use of property; (e) an appearance at, or performance in, a public or private place for the purpose of entertaining, instructing, taking part in any sporting event or otherwise diverting an audience; or (f) an activity by way of supporting, assisting or arranging an appearance or performance referred to in paragraph (e), the amount thereof shall be deemed to be income which accrued in was derived from Kenya: Rev.

2012] Income Tax CAP.

470 41 Provided that (i) this section shall not apply unless the payment is incurred in the production of income accrued in or derived from Kenya or in connection with a business carried on or to be carried on, in whole or in part, in Kenya; (ii) this section shall not apply to a payment made, or pur- ported to be made, by the permanent establishment in Ke- nya of a non-resident person to that non-resident person.

(g) (Deleted by 57 of 2012, s.

15).

(h) the amount or value of the consideration from sale of property or shares in respect of oil companies, mining companies or mineral prospecting companies.

11.

(1) Any income chargeable to tax under this Act and received Certain income by a person in his capacity as a trustee, executor or administrator, shall exempt from tax, etc.

be deemed to be income of that trustee, executor or administrator.

13 of 1978, Sch.

(2) Where an amount included in the income of the trustee, executor or administrator under subsection (1) consists of qualifying dividends or qualifying interest, that amount shall be deemed to be an amount chargeable to tax under section 3(2)(b) and not section 3(2)(e); (3) Any amount, received as income in a year of income by a person benecially entitled thereto from a trustee in his capacity as trustee, or paid out of income by the trustee on behalf of that person, shall, subject to this Act, be deemed to be income of that person, and to the extent that any such amount is received or so paid out of income chargeable to tax under this Act on that trustee it shall be deemed to be income (a) in any case other than that of an annuity directed to be paid free of tax (i) of such gross amount as would, after deduction of tax at the rate paid or payable on that income by the trustee, be equal to the amount received or so paid; and (ii) that has borne tax at that rate; (b) in the case of an annuity directed to be paid free of tax, of such gross amount as is equal to the amount of the sums paid by the trustee to the annuitant to meet the liability of the annuitant to tax on the annuity.

42 [Rev.

2012 CAP.

470 Income Tax Imposition of 12.

(1) Notwithstanding any other provisions of this Act, a installment tax.

tax to be known as instalment tax shall be payable for the year of 8 of 1997, s.

31.

income commencing on or after the 1st January, 1990 by every person chargeable to tax or any person who has paid provisional tax in any year of income in accordance with the provisions of this section, but a taxpayer shall not be required to pay the instalment tax (a) If to the best of his judgement and belief he will have no income chargeable to tax for that year of income other than emoluments; and (b) if he has reasonable ground to believe that the whole of the tax payable by him in respect of those emoluments will be recovered under section 37.

(2) The amount of instalment tax payable by any person for any current year of income shall be the lesser of (a) the amount equal to the tax that would be payable by that person if his total income for the current year was an amount equal to his instalment income; or (b) the amount specied in the preceding year assessment multiplied by one hundred and ten percent.

(3) The amount of tax determined under either subsection (2)(a) or (b) shall be reduced by the aggregate of the tax that has been or will be paid in the current year by way of deduction under section 12A, 35, 37 or 17A except that the deductions under section 17A shall not apply to individuals.

(4) The amount of instalment tax required to be paid for any year of income shall be the annual amount calculated in accordance with subsections (2) and (3) but subject to the proportions as specied in the Twelfth Schedule.

(5) No instalment tax shall be payable by an individual in any year of income where the total tax payable for that year of income is an amount not exceeding forty thousand shillings.

Imposition of 12A.

(1) Notwithstanding any other provision of this Act, a advance tax.

tax to be known as advance tax shall be payable commencing on the 4 of 1999, s.

33., 1st January, 1996 in respect of every commercial vehicle at the rates 10 of 2006, s.

19, 10 of 2010, s.

22.

specied in the Third Schedule.

(2) The Commissioner may prescribe the conditions and Rev.

2012] Income Tax CAP.

470 43 procedures governing the payment of advance tax.

12B.

(1) Notwithstanding any other provision of this Act, a tax Imposition of Fringe benet tax.

to be known as fringe benet tax shall be payable commencing on the 6 of 2001, s.

45.

12th June, 1998 by every employer in respect of a loan provided at an 5 of 1998, s.

31.

interest rate lower than the market interest rate, to an individual who is a director or an employee or is a relative of a director or an employee, by virtue of his position as director or his employment or the employment of the person to whom he is related: Provided that the fringe benet tax shall not apply to loans advanced on or before 11th June, 1998.

(2) For the purpose of this section, the taxable value of a fringe benet shall be_ in the case of a loan provided after l1th June, 1998, or a loan provided on or before 11th June, 1998 the terms or conditions of which are varied after 11th June, 1998, the greater of (i) the difference between the interest that would have been payable on the loan if calculated at the market interest rate and the actual interest paid on the loan; and (ii) zero; Provided that where the term of the loan extends for a period beyond the date of termination of employment, the provisions of this section shall continue to apply for as long as the loan remains unpaid.

(3) Fringe benet tax shall be charged on the total taxable value of a fringe benet provided by an employer in a month and shall be due and payable on or before the tenth day of the following month: Provided that the fringe benet tax charged prior to 1st January, 1999 shall be due and payable on or before 10th January, 1999.

(4) The Commissioner may prescribe the form and manner in which the fringe benet tax shall be payable.

(5) The provisions of this Act in respect to nes, penalties, interest charges, objections and appeals shall apply mutatis mutandis to the fringe benet tax imposed under this section.

(6) For the purpose under this section employee and relative of a director or employee shall have 44 [Rev.

2012 CAP.

470 Income Tax the meaning assigned thereto under section 5( 2A) of this Act; fund; loan includes a loan from an unregistered pension or provident market interest rate means the average rate of interest for the 91-day treasury bills issued in the month prior to the month in which fringe benet tax is charged.

Imposition of 12C.

(1) Notwithstanding any other provision of this Act, a tax to be turnover tax.

known as turnover tax shall be payable from the 1st January, 2007, by any 10 of 2006, s.

20, resident person whose income from business is accrued in or derived from 8 of 2008, s.

29.

Kenya, and does not exceed ve million shillings during any year of income.

Provided that a person who would otherwise be liable to pay tax under this section may, by notice in writing addressed to the Commissioner, elect not to be subject to turnover tax, in which case the other provisions of this Act shall apply to such person.

to (1A) Notwithstanding subsection (1), turnover tax shall not apply (a) rental income and management or professional or training fees; (b) the income of incorporated companies; or (c) any income which is subject to a nal withholding tax under this Act.

(2) The Minister may, by notice in the Gazette, prescribe rules for the better carrying out of the provisions of this section.

PART IIIExEMPTION FROM TAx Interest on 13.

(1) Notwithstanding anything in Part II, the income specied Government loans, in Part I of the First Schedule, which accrued in or was derived from etc., exempt from tax.

8 of 1978, s.

9.

Kenya shall be exempt from tax to the extent so specied.

(2) The Minister may, by notice in the Gazette, provide (a) that income or a class of income which accrued in or was derived from Kenya shall be exempt from tax to the extent specied in the notice; (b) that an exemption under subsection (1) shall cease to have effect either generally or to the extent specied in the notice.

Rev.

2012] Income Tax CAP.

470 45 (3) A notice under subsection (2) shall be laid before the National Assembly without unreasonable delay, and if a resolution is passed by the Assembly within twenty days on which it next sits after the notice is so laid that the notice be annulled, it shall thenceforth be void, but without prejudice to the validity of anything previously done thereunder, or to the issuing of a new notice.

14.

(1) Notwithstanding anything in Part II, interest payable on Trust income, etc., deemed income of the securities specied in Part II of the First Schedule shall be exempt trustee, beneciary, from tax to the extent so specied.

etc.

(2) The Minister may, by notice in the Gazette, provide that the interest payable on any loan charged on the Consolidated Fund or on the revenues of any local authority, shall, in so far as that interest is income which accrued in or was derived from Kenya, be exempt from tax, either generally or only in respect of interest payable to persons who are not resident.

PART IVASCERTAINMENT OF TOTAl INCOME 15.

(1) For the purpose of ascertaining the total income of a person Deductions allowed.

2 of 1975, s.

5, for a year of income there shall, subject to section 16, be deducted all 13 of 1975, s.

2, expenditure incurred in that year of income which is expenditure wholly 7 of 1976, s.

2, and exclusively incurred by him in the production of that income, and 16 of 1977, s.

2, where under section 27 any income of an accounting period ending on 8 of 1978, s.

9, some day other than the last day of that year of income is, for the purpose 6 of 1981, s.

5, of ascertaining total income for a year of income, taken to be income 1 of 1982, s.

3, for a year of income, then the expenditure incurred during that period 14 of 1982, s.

19, shall be treated as having been incurred during that year of income.

8 of 1983, s.

14, 13 of 1984, s.

19, 18 of 1984, s.

3, (2) Without prejudice to subsection (1), in computing for a year 8 of 1985, s.

12, of income the gains or prots chargeable to tax under section 3(2)(a), 10 of 1986, s.

29, the following amounts shall be deducted 10 of 1988, s.

31, 9 of 1989, s.

18, (a) bad debts incurred in the production of those gains or prots 10 of 1990, s.

44, which the Commissioner considers to have become bad, and 13 of 1995, s.

79, doubtful debts so incurred to the extent that they are estimated 8 of 1996, s.

31, to the satisfaction of the Commissioner to have become 8 of 1997, s.

32, bad, during that year of income and the Commissioner may 9 of 2000, s.

42, 6 of 2001, s.

46, prescribe such guidelines as may be appropriate for the 15 of 2003, s.

32, purposes of determining bad debts under this subparagraph.

4 of 2004, s.

48, 6 of 2005, s.

23, (b) amounts to be deducted under the Second Schedule in 10 of 2006, s.

21, respect of that year of income; 9 of 2007, s.

20, 8 of 2009, s.

22.

(bb) amounts to be deducted under the Ninth Schedule in respect 46 [Rev.

2012 CAP.

470 Income Tax of that year of income; (c) expenditure of a capital nature incurred during that year of income by the owner or occupier of farm land for prevention of soil erosion; (d) expenditure of a capital nature incurred in that year of income by a person on legal costs and stamp duties in connexion with the acquisition of a lease, for a period not in excess of, or expressly capable of extension beyond, ninety- nine years, of premises used or to be used by him for the purposes of his business; (e) expenditure, other than expenditure referred to in paragraph (f), incurred in connexion with a business before the date of commencement of that business where the expenditure would have been deductible under this section if incurred after that date, so, however, that the expenditure shall be deemed to have been incurred on the date on which that business commenced; (f) in the case of the owner of premises, any sums expended by him during that year of income for structural alterations to the premises where the expenditure is necessary to maintain the existing rent; but no deduction shall be made for the cost of an extension to, or replacement of, those premises; (g) the amount considered by the Commissioner to be just and reasonable as representing the diminution in value of any implement, utensil or similar article, not being machinery or plant in respect of which a deduction may be made under the Second Schedule, employed in the production of gains or prots; (h) an entrance fee or annual subscription paid during that year of income to a trade association which has made an election under section 21(2); (i) in the case of gains or prots of the owner of land from the sale of, or the grant of the right to fell, standing timber which was growing on the land at the time the owner acquired the land (i) where the land was acquired for valuable consideration, so much of the consideration as the Commissioner may determine to be just and reasonable as representing the cost of the standing timber; or Rev.

2012] Income Tax CAP.

470 47 (ii) where no valuable consideration was given for the land, so much of that amount as the Commissioner may deter- mine to be just and reasonable as representing the value of the standing timber at the time the owner acquired the land, as is attributable to the timber sold during that year of income; (j) in the case of gains or prots from the sale of standing timber by a person who has purchased the right to fell that timber, so much of the price paid for that right as the Commissioner may determine to be just and reasonable as attributable to the timber sold during the year of income; (k) (Deleted by 8 of 1997, s.

32.); (l) expenditure of a capital nature incurred in that year of income by the owner or tenant of agricultural land, as dened in the Second Schedule, on clearing that land, or on clearing and planting thereon permanent or semi-permanent crops; (m) expenditure incurred in that year of income in mining a specied mineral, and for the purposes of this paragraph expenditure shall have the meaning assigned to it by paragraph 16 of the Second Schedule as if specied minerals were not excluded from the operation of that paragraph; (n) expenditure incurred by a person for the purposes of a business carried on by him being (i) expenditure of a capital nature on scientic research; or (ii) expenditure not of a capital nature on scientic research; or (iii) a sum paid to a scientic research association approved for the purposes of this paragraph by the Commissioner as being an association which has as its object the undertak- ing of scientic research related to the class of business to which the business belongs; or (iv) a sum paid to a university, college, research institute or other similar institution approved for the purposes of this paragraph by the Commissioner for the scientic research mentioned in subparagraph (iii); (o) any sum contributed in that year of income by an employer 48 [Rev.

2012 CAP.

470 Income Tax to a national provident fund or other retirement benets scheme established for employees throughout Kenya by the provisions of any written law; (p) expenditure on advertising in connexion with a business to the extent that the Commissioner considers just and reasonable; and for this purpose expenditure on advertising includes expenditure intended to advertise or promote, whether directly or indirectly, the sale of the goods or services provided by that business; (q) (Deleted by 13 of 1984, s.

19.); (r) an amount equal to one-third of the total gains and prots from employment of an individual who is not a citizen of Kenya and (i) whose employer is a non-resident company or partnership trading for prot; (ii) who is in Kenya solely for the performance of his duties in relation to his employers regional ofce, which ofce has been approved for the purposes of this paragraph by the Commissioner; (iii) who is absent from Kenya for the performance of those duties for a period or periods amounting in the aggregate to one hundred and twenty days or more in that year of income; and (iv) whose gains and prots from that employment are not deductible in ascertaining the total income chargeable to tax under this Act of his employer or of any company or partnership which controls, or is controlled by, that employer; and in this subparagraph control has the meaning assigned to it in paragraph 32 of the Second Schedule.

(s) expenditure of a capital nature incurred in that year of income by a person on legal costs and other incidental expenses relating to the authorization and issue of shares, debentures or similar securities offered for purchase by the general public; (ss) expenditure of a capital nature incurred in that year of income by a person, on legal costs and other incidental expenses, for the purposes of listing on any securities Rev.

2012] Income Tax CAP.

470 49 exchange operating in Kenya, without raising additional capital.

(t) expenditure incurred by the lessee in the case of a lease or similar transaction as determined in accordance with such rules as may be prescribed under this Act; (u) expenditure of a capital nature incurred in that year of income by a person on rating for the purposes of listing on any securities exchange operating in Kenya.

(v) club subscriptions paid by an employer on behalf of an employee; (w) any cash donation in that year of income to a charitable organization registered or exempt from registration under the Societies Act or the Non-Governmental Organizations Cap.

108, Corporations Act,1990, and whose income is exempt from 19 of 1990.

tax under paragraph 10 of the First Schedule to this Act, or to any project approved by the Minister for nance; (x) expenditure of a capital nature incurred in that year of income, with the prior approval of the Minister, by a person on the construction of a public school, hospital, road or any similar kind of social infrastructure; (y) expenditure of a capital nature incurred in the purchase or acquisition of an indefeasible right to use a bre optic cable by a telecommunication operator, provided the amount of deduction shall be limited to ve per cent per annum.

(3) Without prejudice to subsection (1), in ascertaining the total income of a person for a year of income the following amounts shall be deducted (a) the amount of interest paid in respect of that year of income by the person upon money borrowed by him and where the Commissioner is satised that the money so borrowed has been wholly and exclusively employed by him in the production of investment income which is chargeable to tax under this Act: Provided that (i) the amount of interest which may be deducted under this paragraph shall not exceed the investment income 50 [Rev.

2012 CAP.

470 Income Tax chargeable to tax for that year of income, and where the amount of that interest paid in that year exceeds the in- vestment income of that year, the excess shall be carried forward to the next succeeding year and deducted only from investment income and, in so far as the interest has not already been so deducted, from investment income of the subsequent years of income; and (ii) for the purposes of this paragraph, investment income means dividends and interest but excludes qualifying dividends and qualifying interest.

(b) the amount of interest not exceeding one hundred and fty thousand shillings paid by him in respect of that year of income upon money borrowed by him from one of the rst four nancial institutions specied in the Fourth Schedule and applied to the purchase or improvement of premises occupied by him during that year of income for residential purposes: Provided that (i) if any person occupies any premises for residential pur- poses for part only of a year of income the deduction under this paragraph shall be reduced accordingly; and (ii) no person may claim a deduction under this paragraph in respect of more than one residence; (c) (Deleted by 14 of 1982, s.

19.); (d) in the case of a partner, the amount of excess, if any, of his share of any loss incurred by the partnership, calculated after deducting the total remuneration and interest on capital payable to any partner by the partnership and after adding interest on capital payable by any partner to the partnership, over the sum of that remuneration and interest so payable to him less any interest so payable by him; (e) (Deleted by 8 of 1978, s.

9.); (f) the amount of any loss realized in computing, in accordance with paragraph 5(2) of the Eighth Schedule, gains chargeable to tax under section 3 (2) (f); but the amount of any such loss incurred in a year of income shall be deducted only from gains under section 3 (2) (f) in that year of income and, in so far as it has not already been deducted, from gains in subsequent years of income.

Rev.

2012] Income Tax CAP.

470 51 (g) in the case of a business which is a sole proprietorship, the cost of medical expenses or medical insurance cover incurred for the benet of the proprietor, subject to a limit of one million shillings per year.

(4) Where the ascertainment of the total income of a person results in a decit for a year of income, the amount of that decit shall be an allowable deduction in ascertaining the total income of that person for that year and the next four succeeding years of income: Provided that (i) a decit for the year of income 1973 shall be regarded for the purposes of this subsection as having arisen entirely in that year of income; (ii) where the income of a married woman is deemed to be the income of her husband, the amount of a decit in her total income existing at the date of her marriage shall be an allowable deduction in ascertaining the total income of her husband for that year and, insofar as that decit has not already been deducted, next succeeding four years of income, to the extent of the amount of her income which is assessed on her husband in those years of income; (iii) (Deleted by 4 of 2004, s.

48.); (iv) Any decit incurred by a person as at 1st January, 2010 shall be deemed to have been incurred in that year of income.

(4A) Notwithstanding subsection (4), the Minister may, on the recommendation of the Commissioner, extend the period of deduction beyond ve years where a person applies through the Commissioner for such extension, giving evidence of inability to extinguish the decit within that period.

(5) (a) A person to whom this subsection applies who has succeeded to a business, or to a share therein, either as a beneciary under the will or on the intestacy of a deceased person who carried on, solely or in partnership, that business shall be entitled to a deduction in the year of income in which he so succeeds in respect of that part of any decit in the total income of the deceased for his last year of income as is attributable to any losses incurred by the deceased in the business in that year of income or in earlier years of income.

52 [Rev.

2012 CAP.

470 Income Tax (b) This subsection applies to a person who is the widow, widower or child, of the deceased person and to a person who was an employee or partner of the deceased person in that business; and, where there are two or more of them, each shall be entitled to a deduction of so much of the whole amount deductible as his share in the business under the will or on the intestacy bears to the sum of the shares of all of them.

(6) For the purposes of this section (a) scientic research means activities in the elds of natural or applied science for the extension of human knowledge, and when applied to any particular business includes (i) scientic research which may lead to, or facilitate, an extension of that business or of businesses in that class; (ii) scientic research of a medical nature which has a spe- cial relation to the welfare of workers employed in that business, or in businesses of that class; (b) expenditure of a capital nature on scientic research does not include expenditure incurred in the acquisition of rights in, or arising out of, scientic research but, subject thereto, does include all expenditure incurred for the prosecution of, or the provision of facilities for the prosecution of, scientic research.

(7) Notwithstanding anything contained in this Act (a) the gains or prots of a person derived from one of the six sources of income respectively specied in paragraph (e) of this subsection (and in this subsection called specied sources) shall be computed separately from the gains or prots of that person derived from any other of the specied sources and separately from any other income of that person; (b) where the computation of gains or prots of a person in a year of income derived from a specied source results in a loss, that loss may only be deducted from gains or prots of that person derived from the same specied source in the following year and, in so far as the loss has not already been so deducted, in subsequent years of income; (c) the subparagraphs of paragraph (e) shall be construed so as to be mutually exclusive; (d) gains chargeable to tax under section 3(2)( f) and losses Rev.

2012] Income Tax CAP.

470 53 referred to in subsection 3(f) of this section shall not be deemed income or losses derived or resulting from specied sources for the purposes of this subsection; (e) the specied sources of income are (i) rights granted to other persons for the use or occupation of immovable property; (ii) employment (including former employment) of per- sonal services for wages, salary, commissions or similar rewards (not under an independent contract of service), and a self-employed professional vocation; (iii) employment the gains or prots from which is wifes employment income, profession the gains or prots from which is wifes professional income and wifes self- employment the gains or prots from which is wifes self employment income; (iv) agricultural, pastoral, horticultural, forestry or similar activities, not falling within subparagraphs (i) and (ii), of this paragraph; (ivA) surplus funds withdrawn or refunded to an employer in respect of registered pension or registered provident funds which are deemed to be the income of the employer under Section 8(10); and (v) other sources of income chargeable to tax under section 3(2)(a), not falling within subparagraph (i), (ii), (iii) or (iv) of this paragraph.

(8) (Deleted by 10 of 2006, s.

21.).

16.

(1) Save as otherwise expressly provided, for the purposes Deductions not of ascertaining the total income of a person for a year of income, no allowed.

7 of 1976, s.

2, deduction shall be allowed in respect of 11 of 1976, s.

7, 8 of 1978, s.

9, (a) expenditure or loss which is not wholly and exclusively 14 of 1982, s.

20 incurred by him in the production of the income; 10 of 1988, s.

32, 12 of 1990, s.

45, (b) capital expenditure, or any loss, diminution or exhaustion 9 of 1997, s.

33, of capital.

6 of 2001, s.

47, 7 of 2002, s.

40, (2) Notwithstanding any other provision of this Act, no deduction 15 of 2003, s.

33, 6 of 2005, s.24, 54 [Rev.

2012 CAP.

470 Income Tax 10 of 2006, 22, shall be allowed in respect of 8 of 2008, s.

31, 8 of 2009, s.

23, (a) expenditure incurred by a person in the maintenance of 10 of 2010, s.

23, himself, his family or establishment or for any other personal 4 of 2012, s.

13.

or domestic purpose including the following (i) entertainment expenses for personal purposes; or (ii) hotel, restaurant or catering expenses other than for meals or accommodation expenses incurred on business trips or during training courses or work related conventions or conferences, or meals provided to employees on the employers premises; (iii) vacation trip expenses except those customarily made on home leave as provided in the proviso to section 5 (4)(a); (iv) educational fees of employees dependants or relatives; or (v) club fees including entrance and subscription fees except as provided in section 15(2)(v).

(b) expenditure or loss which is recoverable under any insurance, contract, or indemnity; (c) income tax or tax of a similar nature including compensating tax paid on income; but, save in the case of foreign tax in respect of which a claim is made under section 41, a deduction shall be allowed in respect of income tax or tax of a similar nature, including compensation tax paid on income which is charged to tax in a country outside Kenya to the extent to which that tax is payable in respect of and is paid out of income deemed to have accrued in or to have been derived from Kenya; (d) sums contributed to a registered or unregistered pension, savings, or provident scheme or fund, except as provided in section 15 (2) (o), or any sum paid to another person as a pension; (e) a premium paid under an annuity contract; (f) expenditure incurred in the production of income deemed under section 10 to have accrued in or to have been derived from Kenya where that expenditure was incurred by a non-resident person not having a permanent establishment within Kenya; Rev.

2012] Income Tax CAP.

470 55 (g) (Deleted by 8 of 1978, s.

9); (h) a loss incurred in a business which, having regard to the nature of the business, to the principal occupation of the owner, partners, shareholders or other persons having a benecial interest therein, to the relationship between those persons or to any other relevant factor, the Commissioner considers it reasonable to regard as not being carried on mainly with a view to the realization of prots; and, without prejudice to the generality of the foregoing, a business shall be deemed not to be carried on for any year of income with a view to the realization of prots where more than one quarter of the amount of the revenue expenditure incurred in that business in that year relates to goods, services, amenities or benets, or to the production of goods, services, amenities or benets, which are of a personal or domestic nature enjoyed by the owner, partners, shareholders or other persons having a benecial interest in the business or a member of the family or the domestic establishment of any such person; (i) (Deleted by 10 of 2006, s.

22.) (j) interest payments in proportion to the extent that the highest amount of all loans held by the company at any time during the year of income exceeds the greater of (i) three times the sum of the revenue reserves and the is- sued and paid up capital of all classes of shares of the company; or (ii) the sum of all loans acquired by the company prior to the 16th June, 1988 and still outstanding in that year, or an amount of deemed interest where the company is in the control of a non-resident person alone or together with four or fewer other persons and where the company is not Cap.

488.

a bank or a nancial institution licensed under the Bank- ing Act; and for the purposes of this paragraph control shall have the meaning ascribed to it in paragraph 32 (1) of the Second Schedule: Provided that this paragraph shall also apply to loans ad- vanced to the company by a non resident associate of the non-resident company controlling the resident company; (k) (Deleted by 8 of 1997, s.

33); 56 [Rev.

2012 CAP.

470 Income Tax (l) (Deleted by 8 of 2009, s.

23).

(3) For the purpose of subsection (2), the expressions all loans means loans, overdrafts, ordinary trade debts, overdrawn current accounts, or any other form of indebtedness for which the company is paying a nancial charge, interest, discount or premium; deemed interest means an amount of interest equal to the average ninety-one day Treasury Bill rate, deemed to be payable by a resident person in respect of any outstanding loan provided or secured by the non-resident, where such loans have been provided free of interest.

(4) For the avoidance of doubt, the expression revenue reserves under subsection (2) includes accumulated losses.

(5) The Commissioner shall prescribe the form and manner in which the deemed interest shall be computed and the period for which it shall be applicable.

Ascertainment of 17.

(1) The stock owned by a farmer at the beginning and end of income of farmers in each period for which he makes up the accounts of his farming business relation to stock.

shall, in computing the gains or prots from that business, be taken into account at the value which the Commissioner may determine to be just and reasonable.

(2) An election duly made by a farmer under section 16 of the Management Act shall be binding upon him for all subsequent years of income in which he carries on the business of farming; but on application in writing by the farmer, the Commissioner may, subject to any adjustment that he may consider appropriate, permit a farmer who has elected not to take into account the value of stock to revoke his election with effect from the year of income prior to that in which the application is made.

(3) Subject to subsection (4), a farmer who has elected not to take into account the value of stock shall be charged for each year of income on all amounts received for stock disposed of by him in any circumstances and whether or not the proceeds thereof would, but for this section, be regarded as capital receipt; and, if a part of the stock is disposed of otherwise than in the open market, he shall be charged on the cost or open market value of that stock, whichever is the lesser, so, however, that in no case shall he be charged on less than the amount received for that stock: Provided that if the sale of any stock has been undertaken as part of the operations involved in changing from one type of farming to Rev.

2012] Income Tax CAP.

470 57 another and the whole or part of the amounts received therefrom has been expended in purchasing stock of a different kind, or on purposes essential to that change where no deduction is allowable under the Second Schedule in respect of that expenditure, the amounts so received, to the extent to which they are so expended, and the amount so expended, shall be disregarded for the purposes of ascertaining his total income for a year of income.

(4) Where a farmer who has elected not to take into account the value of stock ceases to carry on the business of farming, the Commissioner in ascertaining the farmers total income for the year of income in which cessation takes place, may make such adjustment as he may determine to be just and reasonable in respect of the value of stock held by that farmer on 1st January, 1936, or on the date on which he commenced the business whichever date is the later.

(5) A farmer who has elected not to take into account the value of stock shall furnish, when the Commissioner so requires, a statement setting out to the best of his knowledge and belief the value of the stock held by him at any date relevant for the purposes of this section.

(6) Subject to any adjustment referred to in subsection (4) and to such adjustments as the Commissioner would have considered appropriate had an application been received under subsection (2), the executors or administrators of a farmer who has elected not to take into account the value of stock and who dies while carrying on a business of farming shall be charged in respect of stock belonging to the deceased farmer at the time of his death (a) if sold in the open market, on the realized price; (b) if transferred without payment to a beneciary under the will or on the intestacy of the deceased farmer, on the open market value; but where the beneciary succeeds to that business of farming and elects, by notice in writing to the Commissioner within one year after the end of the year of income in which the farmer dies, not to take into account the value of stock (i) no amount shall be charged on the executors or administra- tors in respect of the stock transferred to him; (ii) this section shall be applied to the beneciary as if he had carried on the business of farming throughout the whole period from the date on which the deceased farmer com- menced that business and had made the election which the deceased farmer made; 58 [Rev.

2012 CAP.

470 Income Tax (c) in any other case, on the open market value, as if that price or value had been income of the farmer for the year of income in which he died.

(7) In this section stock means all livestock and produce, and crops which have been harvested.

17A.

(Repealed by 9 of 2000, s.

43.) Ascertainment of 18.

(1) Where a non-resident person carries on a business in gains or prots of Kenya which consists of manufacturing, growing, mining, or producing, business in relation to or harvesting, whether from the land or from the water, a product or certain non- resident produce, and sells outside, or for delivery outside, Kenya that product persons or produce, whether or not the contract of sale is made within or without 8 of 1978, s.

9, Kenya, or utilizes that product or produce in a business carried on by 18 of 1984, s.

4, 2 of 1989, s.

20, him outside Kenya, then the gains or prots from that business carried 4 of 2004, s.

49, on in Kenya shall be deemed to be income derived from Kenya and to 10 of 2006, s.

23, 10 of 2010, s.

24.

be gains or prots of such amount as would have accrued if that product or produce had been sold wholesale to the best advantage.

(2) Where a bank which is a permanent establishment of a non- resident person holds outside Kenya any deposits, assets or property acquired from its operations in Kenya, the gains or prots accruing from such deposits, assets or other property held outside Kenya shall be deemed to be income accrued in or derived from Kenya.

(3) Where a non-resident person carries on business with a related resident person and the course of that business is such that it produces to the resident person either no prots or less than the ordinary prots which might be expected to accrue from that business if there had been no such relationship, then the gains or prots of that resident person from that business shall be deemed to be the amount that might have been expected to accrue if the course of that business had been conducted by independent persons dealing at arms length.

(4) For the purpose of ascertaining the gains or prots of a business carried on in Kenya no deductions shall be allowed in respect of expenditure incurred outside Kenya by a non-resident person other than expenditure in respect of which the Commissioner determines that adequate consideration has been given; and, in particular, no deduction shall be allowed in respect of expenditure (a) on remuneration for services rendered by the non-resident directors (other than whole-time service directors) of a non- resident company the directors whereof have a controlling interest therein, in excess of ve percent of the total income Rev.

2012] Income Tax CAP.

470 59 of that company, calculated before the deduction of that expenditure, or of twenty-ve thousand shillings, whichever is the greater, but no deduction in excess of one hundred and fty thousand shillings shall be allowed; (b) on executive and general administrative expenses except to the extent that the Commissioner may determine that expenditure to be just and reasonable.

(5) When a non-resident person carries on a business in Kenya through a permanent establishment in Kenya the gains or prots of the permanent establishment shall be ascertained without any deduction in respect of interest, royalties or management or professional fees paid or purported to be paid by the permanent establishment to the non- resident person and by disregarding any foreign exchange loss or gain with respect to net assets or liabilities purportedly established between the permanent establishment in Kenya and the foreign head ofce or other ofces of a non-resident person.

(6) For the purposes of subsection (3), a person is related to another if (a) either person participates directly or indirectly in the management, control or capital of the business of the other; or (b) a third person participates directly or indirectly in the management, control or capital of the business or both.

(c) an individual, who participates in the management, control or capital of the business of one, is associated by marriage, consanguinity of afnity to an individual who participates in the management , control or capital of the business of the other.

(7) For the purposes of ascertaining the gains or prots of a petroleum company, as dened in the Ninth Schedule, paragraph (b) of subsection (4) shall not apply; but paragraph 5(2)(f) of that Schedule shall apply instead.

(8) The Minister may, by rules published in the Gazette (a) issue guidelines for the determination of the arms length value of a transaction for the purposes of this section; or (b) specify such requirements as he may consider necessary for the better carrying out of the provisions of this section.

60 [Rev.

2012 CAP.

470 Income Tax Ascertainment of 19.

(1) Notwithstanding anything in this Act, this section shall income of insurance companies.

apply for the purpose of computing the gains or prots of insurance 8 of 1997, s.

34, companies from insurance business which is chargeable to tax; and for 5 of 1998, s.

32, the purposes of this Act a mutual insurance company shall be deemed 8 of 2008, s.

32, to carry on an insurance business the surplus from which shall be 8 of 2009, s.

24.

ascertained in the manner provided for in this section for ascertaining gains or prots and which shall be deemed to be gains or prots which are charged to tax under this Act.

(2) Where an insurance company carries on life insurance business in conjunction with insurance business of another class, the life insurance business of the company shall be treated as a separate business from any other class of insurance business carried on by the company.

(3) The gains or prots for a year of income from the insurance business, other than life insurance business, of a resident insurance company, whether mutual or proprietary, shall be the amount arrived at after (a) taking, for that year of income, the sum of (i) the amount of the gross premiums from that business (less such premiums returned to the insured and such premi- ums paid on reinsurance as relate to that business); and (ii) the amount of other income from that business, includ- ing any commission or expense allowance received or receivable from reinsurers and any income derived from investments held in connexion with that business; and (b) deducting from the sum arrived at under paragraph (a) a reserve for unexpired risks referable to that business at the percentage adopted by the company at the end of that year of income and adding thereto the reserve deducted for unexpired risks at the end of the previous year of income provided that the reserves are estimated on the basis of actuarial principles, including discounting of ultimate costs; and (c) deducting from the gure arrived at under paragraphs (a) and (b) (i) the amount of the claims admitted in that year of income in connexion with that business (Provided that claims incurred but not paid or not reported before the end of the accounting period are estimated on the basis of ac- tuarial principles including the discounting of ultimate costs) less any amount recovered in respect thereof under reinsurance; and Rev.

2012] Income Tax CAP.

470 61 (ii) the amount of agency expenses incurred in that year of income in connexion with that business; and (iii) the amount of any other expenses allowable as a deduc- tion (excluding costs and expenses attributable to earning exempt income) as determined by the ratio of exempt investment income to the sum of investment and exempt investment income) in that year of income in computing the gains or prots of that business under this Act (4) The gains or prots for a year of income from the insurance business, other than life insurance business, of a non-resident insurance company, whether mutual or proprietary, shall be the amount arrived at after (a) taking, for that year of income, the sum of (i) the amount received or receivable in Kenya of the gross premiums from that business (less such premiums returned to the insured and such premiums paid on rein- surance, other than to the head ofce of the company, as relate to that business); and (ii) the amount of other income from that business, not be- ing income from investments, received or receivable in Kenya including any commission or expense allowance received or receivable from reinsurance, other than from the head ofce of that company, of risks accepted in Kenya; and (iii) such amount of income from investments as the Com- missioner may determine to be just and reasonable as representing income from investment of the reserves referable to that business done in Kenya; and (b) deducting from the sum arrived at under paragraph (a) a reserve for unexpired risks outstanding at the end of that year of income in respect of policies for which the premiums are received or receivable in Kenya at the percentage adopted by the company in relation to its insurance business as a whole, other than life insurance, but adding to that sum the reserve deducted for similar unexpired risks at the end of the previous year of income provided that the reserves are estimated on the basis of actuarial principles, including discounting of ultimate costs; and 62 [Rev.

2012 CAP.

470 Income Tax (c) deducting from the gure arrived at under paragraphs (a) and (b) (i) the amount of the claims admitted in that year of income in connexion with that business (Provided that claims incurred but not paid or not reported before the end of the accounting period are estimated on the basis of ac- tuarial principles including the discounting of ultimate costs); less any amount recovered in respect thereof under reinsurance; and (ii) the amount of agency expenses incurred in that year of income in connection with that business; and (iii) an amount being such proportion as the Commissioner may determine to be just and reasonable of those ex- penses of the head ofce of that company as would have been allowable as a deduction in that year of income in computing its gains and prots if the company had been a resident company in so far as those amounts relate to policies the premiums in respect of which are received or receivable in Kenya.

(5) The gains or prots for a year of income from the long term insurance business of a resident insurance company, whether mutual or proprietary, shall be the sum of the following Cap.

487.

(a) the amount of actuarial surplus, as determined under the Insurance Act and recommended by the actuary to be transferred from the life fund for the benet of shareholders; (b) any other amounts transferred from the life fund for the benet of shareholders; and (c) thirty per centum of management expenses and commissions that are in excess of the maximum amounts allowed by the Insurance Act.

Cap.

487.

(5A) Where the actuarial valuation of the life fund results in a decit for a year of income and shareholders are required to inject money into the life fund, the amount of money so transferred shall be treated as a negative transfer for the purposes of subsection (5)(a): Provided that the amount of negative transfer shall be limited to the actuarial surplus recommended by the actuary to be transferred from the life fund for the benet of shareholders in previous years of income.

Rev.

2012] Income Tax CAP.

470 63 (6) The gains or prots for a year of income from the long term insurance business of a non-resident insurance company, whether mutual or proprietary, shall be the sum of the following (a) the same proportion of the amount of actuarial surplus recommended by the actuary to be transferred to the shareholders as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business; and (b) the same proportion of any other amounts transferred from the life fund for the benet of shareholders as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business; and (c) the same proportion of thirty percent of management expenses and commissions that are in excess of the maximum Cap.

487.

amounts allowed by the Insurance Act as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business: Provided that the Commissioner may, if he determines it to be just and reasonable, substitute some basis other than that set out in paragraph (a) for the purpose of ascertaining the portion of the income from investments to be charged as being income derived from business carried on in Kenya.

(6A) Where the actuarial valuation of the life fund results in a decit for a year of income and the shareholders are required to inject money into the life fund, the proportionate amount of the money so transferred shall be treated as a negative transfer for the purposes of subsection (6)(a): Provided that the amount of the negative transfer shall be limited to the amount of actuarial surplus recommended by the actuary to be transferred from the life fund for the benet of th shareholders in previous years of income.

(7) In this section annuity fund means, where an annuity fund is not kept separately from the life insurance fund of the company, that part of the life insurance fund which represents the liability of the company under its annuity contracts; 64 [Rev.

2012 CAP.

470 Income Tax company includes a body of persons; exempt investment income means dividends chargeable to tax under section 3(2)(a)(i) plus income from disposal of investment shares traded in any securities exchange operating in Kenya.

investment income does not include (a) dividends chargeable to tax under section 3(2)(a)(i); and (b) income from the disposal of investment shares traded in any securities exchange operating in Kenya; life insurance fund does not include the annuity fund, if any, nor that part of the life insurance fund as represents the liability of the company under a registered annuity contract, registered trust scheme, registered pension scheme or registered pension fund; life insurance premiums means premiums referable to the life insurance business other than annuity business; life insurance expenses means expenses referable to the life insurance business other than annuity business.

(8) The amount of the gains or prots from insurance business, both from life insurance and from other classes of insurance business, arrived at under this section shall be taken into account together with any other income of the company charged to tax in ascertaining the total income of that company.

(9) (Deleted by 8 of 2008, s.

32.).

Co-operative 19A.

(1) This section shall apply to designated co-operative societies.

societies other than 13 of 1984, s.

20, 8 of 1985, s.

13, 6 of 2001, s.

48, 15 of 2003, s.

34.

(a) a society which has been exempted from all the provisions Cap.

490.

of the Co-operatives Societies Act under section 86 of that Act; or (b) a society in respect of which the Commissioner is of opinion, having regard to the number of members composing it, the nature of its business, the manner in which its business is conducted, the extent of its transactions with non-members Rev.

2012] Income Tax CAP.

470 65 or any other relevant factors, is a body corporate carrying on business for its own prot.

(2) In the case of every designated co-operative society, other than a designated primary society, the income on which tax shall be charged shall be its total income for the year of income deducting therefrom an amount equal to the aggregate of bonuses and dividends declared for that year and distributed by it to its members in money or an order to pay money; but the deduction shall in no case exceed the total income of the society for that year of income.

(3) In the case of every designated primary society, other than a designated primary society which is registered and carries on the business as a credit and savings co-operative society to which the provisions of subsection (4) apply, the income on which tax shall be charged shall be its total income for the year of income deducting therefrom an amount equal to the aggregate of bonuses and dividends declared for that year and distributed by it to its members in money or an order to pay money.

(4) In the case of a designated primary society which is registered and carries on business as a credit and savings co-operative society its total income for any year of income shall, notwithstanding any other provisions of this Act, be deemed to be the aggregate of (a) fty per centum of its gross income from interest (other than interest from its members); (b) its gross income from any right granted for the use or occupation of any property, not being a royalty, ascertained in accordance with the provisions of this Act; (c) gains chargeable to tax under section 3 (2)(f); (d) any other income (excluding royalties) chargeable to tax under this Act not falling within subparagraphs (a), (b) or (c) ascertained in accordance with the provisions of this Act.

(5) Any loss incurred in respect of any year of income prior to the year of income 1985 shall not be deductible.

(6) Where the written down value of any asset or class of assets cannot be readily ascertained, the Commissioner may, for the purpose of granting any wear and tear allowance in respect of the year of income 1985, determine the amount of the written down value of any assets or class of assets.

66 [Rev.

2012 CAP.

470 Income Tax (7) In this section bonus and dividend shall, for the purposes of subsections (2) and (3), have the same meaning as in the Co-operative Societies Act; designated co-operative society means a co-operative society registered under the Co-operative Societies Act; primary society means a co-operative society registered under the Co-operatives Societies Act the membership of which is restricted to individual persons.

Collective investment 20.

(1)Subject to such conditions as may be specied by the schemes.

Minister under section 130 7 of 2002, s.

41.

(a) a unit trust; or (b) a collective investment scheme set up by an employer for purposes of receiving monthly contributions from taxed emoluments of his employees and investing them primarily in shares traded on any securities exchange operating in Kenya, registered by the Commissioner, shall be exempt from income tax except for the payment of withholding tax on interest income and dividends as a resident person as specied in the Third Schedule to the extent that its unit holders or shareholders are not exempt persons under the First Schedule.

(2) All distributions of income, and all payments for redemption of units or sale of shares received by unit holders shall be deemed to have been already tax paid.

Members clubs and 21.

(1) A body of persons which carries on a members club shall trade associations.

be deemed to be carrying on a business and the gross receipts on revenue 1 of 1982, s.

3.

account (including entrance fees and subscriptions) shall be deemed to be income from a business: Provided that where not less than three-quarters of the gross receipts, other than gross investment receipts, are received from the members of the club, that body of persons shall not be deemed to be carrying on a business and no part of those gross receipts, other than gross investment receipts, shall be income.

(2) A trade association may elect, by notice in writing to the Commissioner, in respect of a year of income to be deemed to carry on a business charged to tax, whereupon its gross receipts on revenue account from transactions with its members (including entrance fees and annual subscriptions) and with other persons shall be deemed to be Rev.

2012] Income Tax CAP.

470 67 income from business for that and succeeding years of income.

(3) In this section members club means a club or similar institution all the assets of which are owned by or held in trust for the members thereof; member means (a) in relation to a members club, a person who, while he is a member, is entitled to an interest in all the assets of that club in the event of its liquidation; (b) in relation to a trade association, a person who is entitled to vote at a general meeting of that trade association; gross investment receipts means gross receipts in respect of interest, dividends, royalties, rents, other payments for rights granted for use or occupation of property, or gains of a kind referred to in paragraph (f) of subsection (2) of section 3.

22.

(1) Notwithstanding section 3(2)(c), where payment of Purchased annuities, an annuity to which this section applies is made, that portion of the other than retirement payment which represents the capital element thereof, as ascertained annuities, etc.

under subsection (2) of this section, shall not be deemed to be income.

(2) For the purpose of this section (a) an annuity includes an amount payable on a periodic basis, whether payable at intervals longer or shorter than a year; (b) the portion of each payment of an annuity to which this section applies which represents the capital element thereof shall be that proportion of each payment which the consideration or purchase price for the contract bears to the total payments (i) to be made under the contract, in the case of a contract for a term of years certain; or (ii) expected at the date of the contract to be made under the contract, in the case of a contract under which the continuation of the payments depends in whole or in part upon the survival of an individual; (c) where the continuation of payments depends in whole or in part upon the survival of an individual 68 [Rev.

2012 CAP.

470 Income Tax (i) if a table of mortality has been used as the basis for determining the consideration or purchase price for the contract, that table shall be used in computing the pay- ments expected to be made under the contract, calcula- tions being based upon complete expectation of life; (ii) if no table of mortality has been used as the basis for determining the consideration or purchase price for the contract, such table of mortality as the Commissioner considers appropriate to the case shall be used in comput- ing the payments expected to be made under the contract, calculations being based on complete expectation of life; (iii) the age of that individual at the date of the contract shall be determined by subtracting the calendar year of his birth from the calendar year in which that date falls; (d) where the continuation of payments depends upon the survival of an individual and where, in the event of the death of that individual before those payments aggregate a stated sum, the contract provides that the unpaid balance of the stated sum shall be paid either in a lump sum or by installments, then the contract shall be deemed for the purpose of determining the expected term thereof to provide for the continuance of payments thereunder for a minimum term certain equal to the nearest complete number of years required to complete the payment of the stated sum; (e) where the payments commence on the expiry of a term of years or on he death of an individual, the consideration or purchase price for the contract shall be taken to be (i) the lump sum, if any, which the individual entitled to those payments is entitled to receive in lieu thereof; or (ii) if there is no lump sum, the sum ascertainable from the contract as the present value of the annuity at the date those payments commence; or (iii) if there is no such sum, the present value of those pay- ments computed as at the date the payments commence on the basis of a rate of interest of four per cent per annum and, where the payments depend upon the survival of an individual, the probabilities of survival of that individual shall be computed according to the table of mortality referred to in paragraph (c).

Rev.

2012] Income Tax CAP.

470 69 (3) This section shall apply to annuities, whenever purchased or commencing, payable under a contract but shall not apply (a) to an annuity payable under a registered annuity contract or a registered trust scheme; or (b) to an annuity purchased under a direction in a will, or purchased to provide for an annuity payable under a will or settlement out of income of property disposed of by that will or settlement; or (c) to an annuity purchased under a pension scheme or pension fund; or (d) to an annuity purchased by a person in recognition of the services or past services of another person.

22A.

(1) Notwithstanding section 16(2)(d) and (e), the deduction Deductions in respect in respect of contributions of an employee in a year shall be limited to of distributions to the lesser of registered pension or provident funds.

(a) the sum of the contributions made by the employee to 8 of 1997, s.

35, registered funds in the year; or 5 of 1998, s.

33, 4 of 1999, s.

34, (b) thirty per cent of the employees pensionable income in 9 of 2000, s.

44, the year; or 6 of 2005, s.

25.

(c) two hundred and forty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member, twenty thousand shillings per month of service).

(2) Notwithstanding section 16(2)(d) and (e), the deduction in respect of the contributions made by an employer in a year under dened contribution provisions of registered funds shall be limited to the sum of deductible contributions of the employer in the year under dened contribution provisions of registered funds on behalf of members of the funds: Provided that, in respect of each member, the sum of the deductible contributions of an employer in a year under the dened contribution provisions of registered funds on behalf of a member of a registered fund means the amount by which the lesser of (a) the sum of the contributions in the year made by the employer on behalf of the member under dened contribution 70 [Rev.

2012 CAP.

470 Income Tax provisions of registered funds including contributions made out of surplus funds as required under section 22 (6); and by the member to registered funds of the employer; or (b) thirty per cent of the members pensionable income from the employer; or (c) two hundred and forty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member, twenty thousand shillings per month of service).

(3) Notwithstanding section 16(2)(d) and (e), the deduction in respect of the contributions made by an employer in a year under dened benet provisions of registered funds shall be limited to the amount by which the lesser of (a) the sum of the contributions made by the employer and by the employees in the year to registered funds in respect of members of the dened benet registered funds of the employer; or (b) thirty per cent of the sum of the pensionable incomes from the employer in the year of members of dened benet registered funds of the employer; or (c) two hundred and forty thousand shillings times the number of full-year members of dened benet registered funds of the employer, exceeds the sum of (i) the deductible contributions made in the year to registered funds of the employer by members of registered funds of the employer under subsection (1); and (ii) the amounts deducted by the employer for the year for contributions made under dened contribution provisions of registered funds under subsection (2) in respect of the members of the dened benet registered funds.

(4) In determining the deductible amounts that can be made to registered funds by employees and by employers, subsection (1) shall be applied before subsection (2) and subsection (2) shall be applied before subsection (3).

(5) Pension funds in respect of an employee may be transferred to another registered fund or registered individual retirement fund and Rev.

2012] Income Tax CAP.

470 71 not be treated as a withdrawal under section 3(2)(c) (a) where an employee retires or terminates his employment with an employer and joins the services of another employer and requests funds to be transferred from the former employers registered fund to the new employers registered fund; or (b) where an employer establishes a new registered fund and transfers the existing pension rights of an employee to that new registered fund; or (c) where an employee terminates his employment with an employer and requests funds, which would otherwise be withdrawn or commuted as a lump sum, to be transferred to a registered individual retirement fund; or (d) where an employee and the employer agree mutually to transfer funds relating to the existing retirement benets right of that employee from one registered fund of the employer to another registered fund of that employer provided that the trust deeds of both registered funds allow such a transfer; or (e) where an individual beneciary directs that all funds in a registered individual retirement fund be transferred directly to another such fund: Provided that, in all cases, the Commissioner is notied in such form as he may from time to time direct.

(6) Where a dened contribution registered fund is determined by an audit to have surplus funds, such funds shall be allocated to the accounts of members in lieu of contributions by an employer in each subsequent year until the surplus is exhausted.

(7) Where a registered fund is wound up, any surplus funds therein shall be deemed to be the funds of the employer and shall be immediately withdrawn by the employer unless the trust deed in respect of such registered fund species the contrary.

(8) For the purposes of this section, contributions made to the National Social Security Fund shall be deemed to be contributions made to a dened contribution registered pension fund.

72 [Rev.

2012 CAP.

470 Income Tax Deductions in respect 22B.(1) An individual who is not a member of a registered fund of contributions to or a public pension scheme at any time in a year of income commencing individual retirement on or after the 1st January, 1994 shall be eligible to contribute to a funds.

registered individual retirement fund up to the amount deductible under 8 of 1996, s.

33, subsection (2).

8 of 1997, s.

36, (2) Notwithstanding the provisions of section 16(2)(d) and (e), 5 of 1998, s.

34, the deduction in respect of contributions of an individual to a registered 4 of 1999, s.

35, individual retirement fund in a year shall be limited to the lesser of 9 of 2000, s.

45, 4 of 2004, s.

50, 6 of 2005, s.

26.

(a) the sum of the contributions made by the individual or by the employer of the individual on his behalf on or before the 31st of December of the year; or (b) thirty percent of pensionable income of the individual in that year; or (c) two hundred and forty thousand shillings (or, where contributions are made on behalf of the individual by his employer in respect of a part year of service of the individual, twenty thousand shillings per month of service) reduced by the amount of the contributions made by the individual or by an employer on behalf of the individual to the National Social Security Fund in that year.

(3) All funds maintained by an individual in a registered retirement fund shall be held in one account with a qualied institution.

Registered home 22C.

(1) A depositor shall in any year of income commencing on ownership savings or after 1st January, 1996 be eligible to deposit funds with a registered plan.

home ownership savings plan up to the amount deductible under 5 of 1998, s.

35, subsection (2).

10 of 2006, s.

24, 9 of 2007, s.

21.

(2) Notwithstanding the provisions of section 16(2)(d), deduction shall be allowed in respect of the funds of a depositor under a registered home ownership savings plan in the qualifying year and the subsequent nine years of income, subject to a maximum of forty eight thousand shillings per year of income or four thousand shillings in respect of each month: Provided that for any year of income commencing on or after the 1st January 2007, any interest income earned by a depositor on deposits of up to a maximum of three million shillings shall be exempt from tax.

(3) All deposits made under a registered home ownership savings plan shall be held in an account with an approved institution.

(4) Deposits in a registered home ownership savings plan shall Rev.

2012] Income Tax CAP.

470 73 be invested in accordance with the prudential guidelines issued by the Central Bank.

(5) A depositor may with the prior written approval of the Commissioner transfer his deposits from one approved institution to another which operates a registered home ownership savings plan.

(6) A transfer made under subsection (5) shall not be considered as a withdrawal under section 3(2)(c).

(7) A registered home ownership savings plan shall be operated in such a manner as may be prescribed.

(8) For the purposes of this section and section 8 approved institution means a bank or nancial institution Cap.

488.

registered under the Banking Act, an insurance company licensed under Cap.

487.

the Insurance Act or a building society registered under the Building Cap.

489.

Societies Act; depositor means an individual who has attained the age of eighteen years and does not directly or indirectly or through his spouse, child, corporation, registered business name, or any other way own an interest in a permanent house, and is not and has not previously been a depositor under a registered home ownership savings plan; permanent house means a residential house that a nancial institution would accept as collateral for a mortgage, and includes any part or portion of a building, used or constructed, adapted or designed to be used for human habitation as a separate tenancy for one family only, whether detached, semi-detached or separated by party walls or oors from adjoining buildings or part or portion of such building, together with such outbuildings as are reasonably required to be used or enjoyed therewith; qualifying year means the year in which the depositor rst makes deposits under a registered home ownership savings plan.

23.

(1) Where the Commissioner is of the opinion that the main Transactions purpose or one of the main purposes for which a transaction was effected designed to avoid (whether before or after the passing of this Act) was the avoidance liability to tax.

or reduction of liability to tax for a year of income or that the main benet which might have been expected to accrue from the transaction in the three years immediately following the completion thereof was the avoidance or reduction of liability to tax, he may, if he determines it to be just and reasonable, direct that such adjustments shall be made as respects liability to tax as he considers appropriate to counteract 74 [Rev.

2012 CAP.

470 Income Tax the avoidance or reduction of liability to tax which could otherwise be effected by the transaction.

(2) Without prejudice to the generality of the powers conferred by subsection (1), those powers shall extend (a) to the charging to tax of persons who, but for the adjustments, would not be charged to the same extent; (b) to the charging of a greater amount of tax than would be charged but for the adjustments.

(3) A direction of the Commissioner under this section shall specify the transaction or transactions giving rise to the direction and the adjustments as respects liability to tax which the Commissioner considers appropriate.

Avoidance of 24.

(1) Where the Commissioner is of the opinion that a company tax liability by has not distributed to its shareholders as dividends within a reasonable non-distribution of period, not exceeding twelve months, after the end of its accounting dividends.

period that part of its income for that period which could be so distributed 8 of 1978, s.

9.

without prejudice to the requirements of the companys business, he may direct that that part of the income of the company shall be treated for the purposes of this Act as having been distributed as a dividend to the shareholders in accordance with their respective interests and shall be deemed to have been paid on a date twelve months after the end of that accounting period.

(2) The Commissioner may direct that a charge be made upon a company in respect of adjustments to the liability of a shareholder as a result of a direction under subsection (1): Provided that (i) if a charge is made, the company shall be entitled to re- cover from the shareholder the amount of tax attributable to the adjustment made in respect of that shareholder; and (ii) where an adjustment is made under this section relating to the distributable prots of a company and those prots are subsequently distributed, the proportionate share therein of a shareholder shall be excluded in computing the total income of that shareholder.

(3) (Deleted by 8 of 1978, s.

9.) (4) A company may at any time before making a distribution of a dividend to its shareholders inquire of the Commissioner whether the distribution would be regarded by him as sufcient for the purpose of subsection (1), and the Commissioner, after calling on the company Rev.

2012] Income Tax CAP.

470 75 for any information that he may reasonably require, shall advise the company whether or not he proposes to take action under this section.

(5) Where under this section part of the income of a company is treated as having been distributed and divided to its shareholders and in consequence thereof, another company is treated as having received a dividend, then for the purpose of applying the provisions of subsection (1) to the other company, the dividend which it is treated as having received shall be deemed to be part of the income of the other company available for distribution by the other company to its shareholders as dividends.

25.

(1) Where, under a settlement, income is paid during the life Income settled on children.

of the settlor to or for the benet of a child of the settlor in a year of income, that income shall be deemed to be income of the settlor for that year of income and not income of any other person: Provided that this subsection shall not apply to any year of income in which (i) the income so paid does not exceed one hundred shil- lings; or (ii) the child attains the age of nineteen years.

(2) For the purposes of, but subject to, this section (a) income which is dealt with under a settlement so that it, or assets representing it, will or may become payable or applicable to or for the benet of a child of the settlor in the future (whether on the fullment of a condition, or the happening of a contingency, or as the result of the exercise of a power of discretion, or otherwise) shall be deemed to be paid to or for the benet of that child; (b) income so dealt with which is not required by the settlement to be allocated, at the time when it is so dealt with, to any particular child or children of the settlor shall be deemed to be paid in equal shares to or for the benet of each of the children to or for the benet of whom or any of whom the income or assets representing it will or may become payable or applicable; (c) in relation to a settlor, only income originating from that settlor shall be taken into account as income paid under the settlement to or for the benet of a child of the settlor.

(3) Where under subsection (1) tax is charged on and is paid 76 [Rev.

2012 CAP.

470 Income Tax by the person by whom the settlement was made, that person shall be entitled to recover from a trustee or other person to whom the income is payable under the settlement the amount of the tax so paid, and for that purpose to require the Commissioner to furnish to him a certicate specifying the amount of the tax so paid, and a certicate so furnished shall be conclusive evidence of the facts appearing therein.

(4) Where the amount of the tax chargeable upon a person for a year of income is, by reason of subsection (1), affected by tax deducted from the income under Head B of Part VI, the amount by which the tax is affected shall, if the amount of tax is thereby reduced, be paid by him to the trustee or other person to whom the income is payable under the settlement or, where there are two or more of them, shall be apportioned among those persons as the case may require; and if any question arises as to the amount of a payment or as to an apportionment to be made under this subsection, that question shall be decided by the Commissioner whose decision thereon shall be nal.

(5) Income which is deemed under this section to be the income of a Person shall be deemed to be the highest part of his income.

(6) This section shall apply to every settlement, wheresoever it was made or entered into and whether it was made or entered into before or after the commencement of this Act, except a settlement made or entered into before 1st January, 1939, which immediately before that date was irrevocable, and shall (where there is more than one settlor or more than one person who made the settlement) have effect in relation to each settlor as if he were the only settlor.

(7) In this section (a) child means a child under the age of nineteen years and includes a step-child, an adopted child and an illegitimate child; (b) settlement includes any disposition, trust, covenant, agreement, arrangement, or transfer of assets, but does not include a disposition, trust, covenant, agreement, arrangement, or transfer of assets, resulting from an order of a court unless that order is made in contemplation of this provision; (c) settlor, in relation to a settlement, includes a person by whom the settlement was made or entered into directly or indirectly, and a person who has provided or undertaken to provide funds directly or indirectly for the purpose of the Rev.

2012] Income Tax CAP.

470 77 settlement, or has made with another person a reciprocal arrangement for that person to make or enter into the settlement; (d) references to income originating from a settlor are references to (i) income from property originating from that settlor; and (ii) income provided directly or indirectly by that settlor; (e) references to property originating from a settlor are references to (i) property which that settlor has provided directly or indi- rectly for the purposes of the settlement; and (ii) property representing that property; and (iii) so much of any property which represents both property so provided and other property as, on such apportion- ment as the Commissioner may determine to be just and reasonable, represents the property so provided; (f) references to (i) property or income which a settlor has provided directly or indirectly include references to property or income which has been provided directly or indirectly by another person in pursuance of reciprocal arrangements with that settlor but do not include references to property or income which that settlor has provided directly or indirectly in pursu- ance of reciprocal arrangements with another person; (ii) property which represents other property include refer- ences to property, which represents accumulated income from that other property.

(8) Where, under this section, income is deemed to be income of the settlor, it shall be deemed to be income received by him as a person benecially entitled thereto under the settlement.

26.

(1) All income which in a year of income accrued to or was Income from certain received by a person under a settlement from assets remaining the settlements deemed property of the settlor shall, unless that income is deemed under section to be income of 25 to be income of the settlor for an earlier year of income, be deemed settlor.

to be income of the settlor for the year of income in which it so accrued 78 [Rev.

2012 CAP.

470 Income Tax to or was received by that person and not income of another person whether or not the settlement is revocable and whether it was made or entered into before or after the commencement of this Act.

(2) All income, which in a year of income accrued to or was received by a person under a revocable settlement shall be deemed to be income of the settlor for that year of income and not income of another person.

(3) Where in a year of income the settlor, or a relative of the settlor, or any other person, under the direct or indirect control of the settlor or any of his relatives or the settlor and any of his relatives, by agreement with the trustees of a settlement in any way, whether by borrowing or otherwise, makes use of income arising, or of accumulated income which has arisen, under the settlement to which he is not entitled thereunder, then the amount of that income or accumulated income so made use of shall be deemed to be income of the settlor for that year of income and not income of any other person.

(4) For the purposes of this section, a settlement shall be deemed to be revocable if under its terms the settlor (a) has a right to reassume control, directly or indirectly, over the whole or any part of the income arising under the settlement or of the assets comprised therein; or (b) is able to have access, by borrowing or otherwise, to the whole or any part of the income arising under the settlement or of the assets comprised therein; or (c) has power, whether immediately or in the future and whether with or without the consent of any other person, to revoke or otherwise determine the settlement and in the event of the exercise of that power, the settlor or the wife or husband of the settlor will or may become benecially entitled to the whole or any part of the property comprised in the settlement or to the income from the whole or any part of that property: Provided that a settlement shall not be deemed to be revocable by reason only that under its terms the settlor has a right to reassume control, directly or indirectly, over income or assets relating to the interest of a beneciary under the settlement in the event that the beneciary should predecease him.

(5) In this section relative of a person means Rev.

2012] Income Tax CAP.

470 79 (a) his spouse; (b) an ancestor, lineal descendant, brother, sister, uncle, aunt, nephew, niece, step-father, step-mother, step-child, adopted child, and, in the case of an adopted child, his adopter or adopters; (c) the spouse of a relative referred to in paragraph (b); settlement includes a disposition, trust, covenant, agreement, arrangement, or transfer of assets, other than (a) a settlement made for valuable and sufcient consideration; (b) an agreement made by an employer to confer a pension upon an employee in respect of a period after the cessation of employment with that employer, or to provide an annual payment for the benet of the widow or any relative or dependant of that employee after his death, or to provide a lump sum to an employee on the cessation of that employment.

(6) Where, under this section, tax is charged on and is paid by the settlor, the settlor shall be entitled to recover from the trustees or other person to whom the income is payable under the settlement the amount of the tax so paid, and for that purpose to require the Commissioner to furnish to him a certicate specifying the amount of the tax so paid, and a certicate so furnished shall be conclusive evidence of the facts appearing therein.

(7) Where, under this section, income is deemed to be income of the settlor, it shall be deemed to be income received by him as a person benecially entitled thereto under the settlement.

27.

(1) Where a person usually makes up the accounts of his Accounting periods business for a period of twelve months ending on a day other than 31st not coinciding with December, then, for the purpose of ascertaining his total income for year of income, etc.

a year of income, the income of an accounting period ending on that 7 of 1976 s.

2, other date shall, subject to such adjustment as the Commissioner may 8 of 1996, s.

34.

consider appropriate, be taken to be income of the year of income in which the accounting period ends (a) in the case of a person other than an individual, as regards all income charged under section 3; and 80 [Rev.

2012 CAP.

470 Income Tax (b) in the case of an individual, as regards all income charged under that section other than gains or prots from employment or services rendered.

(1A) A person carrying on an incorporated business may subject to the prior written approval of the Commissioner alter the date to which the accounts of the business are made up.

(1B) A person seeking the approval of the Commissioner under subsection (1A) shall apply in writing to the Commissioner at least six months before the date to which the accounts are intended to be made up.

(1C) The Commissioner shall within six months from the date of receipt of the application communicate his decision in writing to the applicant.

(2) Where a person makes up the accounts of his business for a period greater or less than twelve months, the Commissioner may, subject to such adjustment as he may consider appropriate, including the assessment for a year of income which, but for any alteration in the date to which the accounts of the business are made up, would have been assessed for that year of income, treat the income of that accounting period as income of the year of income in which the accounting period ends, and tax shall be charged accordingly.

(3) The accounting period of a person carrying on any unincorporated business shall be the period of twelve months ending on 31st December each year, and (4) Any person to whom subsection (3) applies shall not later than 31st December, 1998 change the accounting date to comply with the provisions of that subsection.

Income and 28.

(1) Where a sum is received by a person after the cessation of expenditure after his business which, if it had been received prior to the cessation, would cessation of business.

have been included in the gains or prots from that business, then, to the extent to which that sum has not already been included in those gains or prots, that sum shall be income of that person for the year of income in which it is received.

(2) Where a sum is paid by a person after the cessation of his business which, if it had been paid prior to the cessation, would have been deductible in computing his gains or prots from that business, then, to the extent to which that sum has not already been deducted in computing those gains or prots, it shall be deducted in ascertaining his total income for the year of income in which it is paid and to the extent that the sum or remainder thereof, as the case may be, cannot be Rev.

2012] Income Tax CAP.

470 81 so deducted, it shall be deducted in ascertaining his total income for the year of income in which the business ceased.

PART VPERSONAl RElIEF 8 of 1997, s.

37 29.

(1) Subject to this section and to section 77, a resident General.

individual who for a year of income is in receipt of taxable income and 8 of 1997, s.

38.

has furnished a return of income in respect of that year of income, shall, in respect of that year of income, be entitled to a personal relief which shall be set off against tax payable by him for that year of income at the rate and subject to the limitation specied in Head A of the Third Schedule: Provided that (i) notwithstanding that an individual has furnished no such return of income, he shall, for the purposes of section 37, be given the personal relief which he will be entitled to for that year of income; and (ii) nothing in this section shall prevent the Commissioner from granting to an individual in an assessment made under subsection (3) of section 73 that personal relief.

(2) On a change of relevant circumstances occurring during a year of income, an individual shall be entitled only to the proportion of the amount of the personal relief which he was entitled to at the commencement of that year of income as (a) the number of full months in that year of income up to the end of the month in which he ceased to be resident; or (b) the number of full months in that year of income from the commencement of the month in which he became resident, as the case may be, bears to twelve; and in this subsection relevant circumstances means the death or departure referred to in subsection (3) or the arrival referred to in subsection (4).

(3) Where an individual, having been a resident individual, dies or departs from Kenya with the intention of permanently leaving Kenya, he shall, in respect of that year of income, be deemed to have been resident for the number of months in that year of income up to and including the month in which he dies or so departs, as the case may be; but where that individual is entitled to leave with pay following cessation of his employment in Kenya and part of that leave relates to the period after his departure from Kenya, he shall be deemed for the purposes of this section to have departed from Kenya on the date when the leave expires.

82 [Rev.

2012 CAP.

470 Income Tax (4) When an individual arrives in Kenya with the intention of becoming resident therein after the beginning of a year of income, he shall, in respect of that year of income, be deemed to have been resident for the number of months in that year of income from and including the month in which he arrived.

Personal relief.

30.

A resident individual in receipt of taxable income shall be entitled to a tax relief in this Act referred to as the personal relief.

Insurance relief.

8 of 1996, s.

36, 31.

(1) A resident individual who proves that in a year of income 7 of 2002, s.

42, (a) he has paid a premium for an insurance made by him on 10 of 2006, s.

his life, or on the life of his wife or of his child and that the insurance secures a capital sum whether or not in conjunction with another benet, and that the insurance is made with an insurance company lawfully carrying on in Kenya the business of life insurance, and that sums payable under the insurance are payable in Kenya in the lawful currency of Kenya; or (b) his employer has paid a premium for that insurance on the life, and for the benet, of that individual which is charged with tax under this Act on that individual; or (c) he, as well as his employer, has paid a premium for the insurance referred to in paragraph (b), shall, for that year of income, be entitled to a personal relief in this Act referred to as the insurance relief: Provided that (i) no insurance relief shall be granted in respect of that part of a premium for an insurance as secures a benet which may, at the option of the assured, be withdrawn at any time prior to the determination of the insurance, and in that case the proportion of premiums otherwise eligible for relief, if any, shall be the amount that the Commis- sioner may determine to be just and reasonable; (ii) no relief shall be granted in respect of a premium for an insurance unless the person claiming the relief furnishes evidence as to the nature and conditions of the insurance and such other particulars as may be required by the Commissioner; Rev.

2012] Income Tax CAP.

470 83 (iii) an education policy with a maturity period of at least ten years shall qualify for relief; and (iv) the provisions of this section shall apply only to life or education policies whose term commences on or after the 1st of January, 2003.

(v) a health policy whose term commences on or after the 1st January, 2007 shall qualify for relief; (vi) where a policy is surrendered before its maturity, all the relief granted to the policyholder shall be recovered from the surrender value of the policy and remitted to the Commissioner by the insurer.

(2) In this section child, means any child of the resident individual and includes a step-child, an adopted child and an illegitimate child who was under the age of eighteen years on the date the premium was paid.

32.

(Repealed by 8 of 1992, s.

62.) 33.

(Repealed by 8 of 1996, s.

37.) PART VIRATES, DEDuCTIONS AND SET-OFF OF TAx AND DOublE TAxATION RElIEF ARates of Tax.

34.

(1) Subject to this section Rate of tax.

2 of 1975, s.

5, (a) tax upon the total income of an individual, other than that 13 of 1975, s.

2, part of the total income comprising wifes employment 8 of 1978, s.

9, 12 of 1980, s.

33, income fringe benets and the qualifying interest, shall be 6 of 1981, s.

5, charged for a year of income at the individual rates for that 10 of 1987, s.

33, year of income; 10 of 1988, s.

32, 6 of 1994, s.

41, (b) tax upon that part of the total income which consists of wifes 5 of 1998, s.

36, employment income, wifes professional income rate and 9 of 2007, s.

22, wifes self-employment income other than income arising 4 of 2012, s.15, 57 of 2012, s.

16.

from fringe benets rate shall be charged for a year of income at the wifes employment income rate, wifes professional income rate and wifes self-employment income rate, as the case may be, for that year of income; 84 [Rev.

2012 CAP.

470 Income Tax (c) tax upon that part of the total income of an individual that comprises the qualifying interest shall be charged for a year of income at the qualifying interest rate of tax for that year of income; (d) tax upon that part of the total income of a person that comprises the qualifying dividends shall be charged for a year of income at the qualifying dividend rate of tax for that year of income.

(e) tax upon the total income of a person other than an individual shall be charged at the corporation rate for that year of income.

(f) tax upon that part of total income that comprises dividends other than qualifying dividends shall be charged in a year of income at the resident withholding rate in respect of a dividend specied in the Third Schedule.

(g) tax upon the total fringe benets provided by an employer shall be charged at the resident corporation rate for that year of income.

(h) tax upon gross receipts of a person chargeable to tax under section 12 (c) shall be charged at the resident rate for that year of income.

(i) tax upon the amount or value of the consideration from sale of property or shares of a resident person charged under section 3(2)(g) shall be charged at the rate provided for under paragraph 5 of the Third Schedule; (1A) Where the total income referred to in paragraph (a) of subsection (1) includes net capital gain, and the individual rates of tax payable on a part of that income exceed thirty-ve per cent (which part is in this subsection called the relevant part) (a) the tax payable on the portion of the relevant part which is net capital gain shall, notwithstanding any other provisions of this Act, be at the rate of thirty-ve per cent; and (b) the tax payable on the balance of the relevant part shall be computed by reference to the individual rates of tax above thirty-ve per cent that would apply if the income referred to in paragraph (a) of this subsection had been the top slice of income.

Rev.

2012] Income Tax CAP.

470 85 (1B) In subsection (IA) net capital gain means income chargeable to tax under section 3 (2) (f) reduced in accordance with section 15 (8); top slice of income means that part of the income which attracts the highest rates of tax; (2) Tax upon the income of a non-resident person not having a permanent establishment in Kenya which consists of (a) a management or professional fee; (b) a royalty; (c) a rent, premium or similar consideration for the use or occupation of property; (d) a dividend; (e) interest; (f) a pension or retirement annuity; (g) a payment in respect of an appearance at, or performance in, any place (whether public or private) for the purpose of entertaining, instructing, taking part in a sporting event or otherwise diverting an audience; (h) a payment in respect of an activity by way of supporting, assisting or arranging an appearance or performance referred to in paragraph (g), shall be charged at the appropriate non- resident rate in force at the date of payment of that income and shall not be charged to tax under subsection 2; or (i) (Deleted by 57 of 2012, s.16.) (j) a payment in respect of gains or prots from the business of transmitting messages which is chargeable to tax under section 9(2).

(k) the amount or value of the consideration from the sale of property or shares in respect of oil companies, mining companies or mineral prospecting companies.

(3) (Deleted by 8 of 1978, s.

9.) 86 [Rev.

2012 CAP.

470 Income Tax (4) In this section person does not include a partnership.

34A.

(Repealed by 8 of 1978, s.

9.) BDeduction of Tax Deduction of tax 35.

(1) A person shall, upon payment of an amount to a non- from certain income.

resident person not having a permanent establishment in Kenya in 2 of 1975, s.

5, respect of 13 of 1975, s.

2, 7 of 1976, s.

2, (a) a management or professional fee or training fee except 8 of 1978, s.

9, 13 of 1979, s.

5, (i) a commission paid to a non-resident agent in respect of 18 of 1979, s.

2, 10 of 1987, 34, owers, fruits or vegetables exported from Kenya and 6 of 1994, s.

42, auctioned in any market outside Kenya and audit fees for 8 of 1996, s.

38, analysis of maximum residue limits paid to a non-resident 4 of 1999, s.

36, laboratory or auditor; or 9 of 2000, s.

46, 6 of 2001, s.

49, (ii) a commission paid by a resident air transport operator 7 of 2002, s.

43, to a non-resident agent in order to secure tickets for 15 of 2003, s.

35 international travel; and s.

36, 4 of 2004, s.

51, (b) a royalty; 6 of 2005, s.

27, 10 of 2006, s.

26, (c) a rent, premium or similar consideration for the use or 9 of 2007, s.

23, occupation of property, except aircraft, aircraft engines 8 of 2008, s.

33, locomotives or rolling stock; 8 of 2009, s.

25, 10 of 2010, s.

25, 4 of 2012, s.16, Provided that 57 of 2012, s.

17.

(i) Consultancy, agency or contractual fee; (ii) where a non-resident person disposes of a bond, loan, claim, obligation or other evidence of indebtedness ac- quired from a person exempt under the First Schedule or a nancial institution specied in the Fourth Schedule, tax shall be deducted upon nal redemption from the difference between the nal redemption price and the acquisition price, if the exempt person or nancial insti- tution certies the acquisition price to the satisfaction of the Commissioner; and (d) a dividend; (e) interest and deemed interest; (f) a pension or retirement annuity; Rev.

2012] Income Tax CAP.

470 87 Provided that for the purposes of this paragraph, contractual fee within the meaning of management or professional fee shall mean payment for work done in respect of building, civil or engineering works.

(g) an appearance at, or performance in, a place (whether public or private) for the purpose of entertaining, instructing, taking part in a sporting event or otherwise diverting an audience; or (h) an activity by way of supporting, assisting or arranging an appearance or performance referred to in paragraph (g), which is chargeable to tax, deduct therefrom tax at the appropriate non-resident rate; (i) (Deleted by 7 of 2002, s.

43.) (j) (Deleted by 57 of 2012, s.

17).

(k) the sale of property or shares in respect of oil companies, mining companies or mineral prospecting companies; (l) gains or prots from the business of transmitting messages which is chargeable to tax under section 9(2).

(2) (Deleted by 8 of 1978, s.

9.) (3) A person shall, upon payment of an amount to a person resident or having a permanent establishment in Kenya in respect of (a) a dividend; or (b) interest, other than interest paid to a nancial institution specied in the Fourth Schedule which is resident or which has a permanent establishment in Kenya, including interest arising from a discount upon nal satisfaction or redemption of a debt, bond, loan, claim, obligation or other evidence of indebtedness measured as the original issue discount, other than interest or discounts paid to a person exempt under the First Schedule or a nancial institution specied in the Fourth Schedule: Provided that (i) where the bond, loan, claim, obligation or other evidence of indebtedness is acquired by a person exempt under 88 [Rev.

2012 CAP.

470 Income Tax the First Schedule or a nancial institution specied in the Fourth Schedule from the resident person, such an exempt person or nancial institution shall deduct tax from the difference between the acquisition price and the original issue price; and (ii) where the resident person disposes of a bond, loan, claim, obligation or other evidence of indebtedness acquired from a person exempt under the First Schedule or a nancial institution specied in the Fourth Schedule, tax shall be deducted upon nal redemption from the difference between the nal redemption price and the acquisition price, if the exempt person or nancial in- stitution certies the acquisition price to the satisfaction of the Commissioner.

(c) an annuity payment excluding that portion of the payment which represents the capital element; or (d) a commission or fee paid or credited by an insurance company to any person for the provision, whether directly or indirectly, of an insurance cover to any person or group of persons (except a commission or fee paid or credited to another insurance company); or (e) a pension or a lump sum commuted or withdrawn from a registered pension fund or a lump sum out of a registered provident fund in excess of the tax exempt amounts specied in section 8(4) and (5), or any amount paid out of a registered individual retirement fund, or a benet paid out of the National Social Security Fund in excess of the tax exempt amount specied in section 8(5); or (ee) surplus funds withdrawn from or paid out of registered pension or provident funds; (f) management or professional fee or training fee the aggregate value of which is twenty-four thousand shillings or more in a month: Provided that for the purposes of this paragraph, contractual fee within the meaning of management or professional fee or training fee shall mean payment for work done in respect of building, civil or engineering works.

(g) a royalty; which is chargeable to tax, deduct therefrom tax Rev.

2012] Income Tax CAP.

470 89 at the appropriate resident withholding tax.

(h) (Deleted by 10 of 2010, s.

25.) (i) (Deleted by 57 of 2012, s.

17) (j) the sale of property or shares in respect of oil companies, mining companies or mineral prospecting companies.

(3A) A person shall upon payment (a) to an individual or a non-resident body of persons in respect of the gross amount or aggregate consideration of a transaction the income or proceeds from which is subject to tax pursuant to section 3(2)(f); or (b) to a resident body of persons in respect of the gross amount or aggregate consideration of a land transaction the income or proceeds from which is subject to tax pursuant to section 3(2)(f), deduct tax therefrom at the appropriate rate; (3B) The provisions of subsection (3A) shall not apply where a person entitled to chargeable property by way of security or to the benet of a charge or encumbrance on that property deals with the property for the purpose of enforcing or giving effect to the security, charge or encumbrance.

(3C) (Deleted by 9 of 2007, s.

23).

(4) No deduction shall be made under subsection (1) or (3) from a payment which is income exempt from tax under this Act, or to which an order made under subsection (7) or (8) applies.

(5) Where a person deducts tax under this section he shall, on or before the twentieth day of the month following the month in which the deduction was made, (a) remit the amount so deducted to the Commissioner together with a return in writing of the amount of the payment, the amount of tax deducted, and such other information as the Commissioner may specify; and (b) furnish the person to whom the payment is made with a certicate stating the amount of the payment and the amount 90 [Rev.

2012 CAP.

470 Income Tax of the tax deducted.

(6) Where a person who is required under this section and in accordance with the rules made under Section 130 to deduct tax (a) fails to make the deduction or fails to deduct the whole amount of the tax which he should have deducted; or (b) fails to remit the amount of a deduction to the Commissioner on or before the twentieth day following the month in which the deduction was made or ought to have been made; the Commissioner may impose such penalty as may, from time to time, be prescribed under the rules, and the provisions of this Act relating to the collection and recovery of tax and the payment of interest thereon, shall apply to the collection and recovery of that amount of tax and penalty as if they were tax due and payable by that person on the due date for the payment of which was the date on which the amount of tax should have been remitted to the Commissioner.

(6A) Where a person who is required under subsection (3A) to deduct tax (a) fails to make the deduction or fails to deduct the whole Cap.

480.

amount of the tax which he should have deducted; or (b) fails to remit the amount of a deduction to the Commissioner on or before the twentieth day of the month following the month in which the deduction was made or ought to have been made, no Collector of Stamp Duties appointed under section 4 of the Stamp Duty Act shall stamp the instrument of which the property is the subject matter under the Stamp Duty Act, and no Registrar of Titles or Land Registrar appointed under any written law shall register the property under any written law, until the tax has been duly accounted for; but the transferee of chargeable property may pay the tax and recover the amount of the tax from any consideration for the transfer in his possession, by action in a court or by any other lawful means at his disposal.

(6B) A person aggrieved by the imposition by the Commissioner of a penalty under this section may appeal against such imposition to the local committee within thirty days after the date of service of the notice of imposition: Provided that (i) the person shall, prior to making the appeal, pay all the Rev.

2012] Income Tax CAP.

470 91 tax due and the penalty imposed under this section; and (ii) the appeal shall be limited to the determination of the question as to whether the person has complied with the provisions of this Act and any regulations made thereunder relating to the deduction or remitting of tax under this section.

(6C) Subject to subsection (6B), the provisions of this Act relating to appeals to local committees against assessment shall apply mutatis mutandis to appeals under this section.

(6D) A person aggrieved by the imposition, by the Commissioner, of a penalty under this section may, by notice in writing to the Commissioner, object to the imposition within thirty days of the date of service of the notice of the imposition.

(6E) The provisions of this Act in respect of objections shall, mutatis mutandis, apply to objections under this section (7) The Minister may, by notice in the Gazette, exempt from the provisions of subsection (3) any payment or class of payments made by any person or class of persons resident or having a permanent establishment in Kenya.

(8) The Minister may, by notice in the Gazette, amend or add to the Fourth Schedule in respect of nancial institutions resident or having a permanent establishment in Kenya.

36.

(1) The trustees of a will or settlement shall, upon payment Deduction of tax of an annuity under the will or settlement, deduct therefrom tax at the from annuities, etc., rate paid or payable on the income out of which the annuity is payable: paid under a will, etc.

Provided that (i) no deduction of tax shall be made from that part of an annuity which is paid out of income in respect of which no tax is paid or payable; (ii) an annuity directed to be paid free of tax shall be paid without deduction of tax, and sums paid by the trustees to the annuitant to meet his liability to tax on the annu- ity shall also be paid without deduction of tax and the trustees shall be entitled to repayment of the tax paid by deduction or otherwise on such an amount of the income of the trust as is equal to the total of the annuity and the sums so paid; 92 [Rev.

2012 CAP.

470 Income Tax (iii) the Commissioner may authorize the trustees on payment of an annuity other than an annuity directed to be paid free of tax to deduct, from the amount of the annuity, tax at a rate lower than the rate paid or payable on the income, or no tax, and thereupon the trustees shall deduct from the amount of that annuity so paid tax at the lower rate, or no tax, as the case may be.

(2) For the purposes of this section, where an annuity is not payable out of income of specied assets, it shall be deemed to be payable out of income liable to tax under this Act to the extent to which that income is available for the payment thereof.

(3) Where section 11(2)(a) applies the trustee shall furnish each person to whom or on whose behalf amounts are paid in a year of income with a certicate setting out the gross amount of the payments, the amount of tax appropriate thereto, and the net amount so paid in that year of income.

Deductions of tax 37.

(1) An employer paying emolument to an employee shall from emoluments.

deduct therefrom, and account for tax thereon, to such extent and in 7 of 1976, s.

2, such manner as may prescribed.

1 of 1982, s.

3, 8 of 1983, s.

15, (2) If an employer paying emoluments to an employee fails 8 of 1997, s.

39, 5 of 1998, s.

15, (a) to deduct tax thereon; 9 of 2000, s.

47, 8 of 2008, s.

34, 10 of 2010, s.

26.

(b) to account for tax deducted thereon; or (c) to supply the Commissioner with a certicate provided by rules prescribing the certicate, the Commissioner may impose a penalty equal to twenty- ve per cent of the amount of tax involved or ten thousand shillings whichever is greater, and the provisions of this Act relating to the collection and recovery of that tax shall also apply to the collection and recovery of the penalty as if it were tax due from the employer: Provided that, instead of the Commissioner imposing a penalty under this subsection, a prosecution may be instituted for an offence under section 109(1)(j).

(3) The Commissioner may remit the whole or part of any penalty imposed under this section up to a maximum of ve hundred thousand Rev.

2012] Income Tax CAP.

470 93 shillings per employer per annum.

Provided that (a) the Commissioner may remit any amount of penalty in excess of ve hundred thousand shillings per employer per annum with the prior written approval of the Minister; and (b) the Commissioner shall make a quarterly report to the Minister of all penalties remitted during that quarter.

(4) Tax deducted under this section from the emoluments of an employee shall be deemed to have been paid by that employee and shall be set off for the purposes of collection against tax charged on that employee in respect of those emoluments in an assessment for the year of income in which those emoluments are received.

(5) Where a person who is required under this section to deduct tax fails to remit the amount of any deduction to such person as the Commissioner may direct within the time limit specied in rules made under section 130, the provisions of this Act relating to the collection and recovery of tax, and the payment of interest thereon, shall apply to the collection and recovery of that amount as if it were tax due and payable by that person, the due date for the payment of which is the date specied in rules made under section 130 by which that amount should have been remitted to the payee.

(5A) An employer aggrieved by the imposition of a penalty by the Commissioner or any other decision taken by the Commissioner under this section may, by notice in writing to the Commissioner, within thirty days, object to such imposition or decision.

(5B) The provisions of this Act in respect of objections shall, mutatis mutandis, apply to objections under this section.

(6) An employer aggrieved by the imposition by the Commissioner of penalty, or by any other decision taken by the Commissioner under this section, may appeal against such imposition or decision to the local committee within thirty days after the service of the notice of the imposition or communication to him of the decision, as the case may be: Provided that where the appeal relates to the imposition of a penalty (i) the employer shall, prior to making the appeal, pay all the tax due and the penalty imposed under this section; and 94 [Rev.

2012 CAP.

470 Income Tax (ii) the appeal shall be limited to the determination of the question as to whether the employer has complied with the provisions of this Act and any regulations made thereunder relating to the deduction of tax from the emoluments of employees.

(7) Subject to subsection (6) the provisions of this Act relating to appeals to local committees against assessments shall apply mutatis mutandis to appeals under this section.

Penalty for failure 37A.

Where a corporate body which is required to make a to make deductions deduction under section 35, 36 or 37 fails to remit the deducted amount under section 35, 36, as required or directed by the Commissioner, every director and every or 37.

ofcer of the corporate body concerned with the management thereof, shall be guilty of an offence, unless he proves to the satisfaction of the court that he did not know, and could not reasonably be expected to know that the deducted amount had not been remitted and that he took all reasonable steps to ensure that the offence was not committed, and shall be liable to a ne of not less than ten thousand shillings but not more than two hundred thousand shillings or to imprisonment for a term not exceeding two years or to both.

Application to 38.

The provisions of this Part relating to deduction of tax shall Government.

bind the Government.

CSet-off of Tax Set-off of tax.

39.

(1) An amount tax of which 6 of 2001, s.

50, 9 of 2007, s.

24, (a) has been deducted under section 17A (in respect of a person 8 of 2008, s.

35.

other than an individual), 35, 36 or 37; or (b) has been borne by a trustee, executor or administrator in his capacity as such on an amount paid as income to a beneciary, shall be deemed to have been paid by the person chargeable with that tax and shall be set off for the purposes of collection against the tax charged on that person for the year of income in respect of which it was deducted, and where an assessment is made by the Commissioner on a person for a year of income under section 73 the amount of tax which has already been paid under a provisional assessment on that person for that year of income shall be set off for the purposes of collection against the tax charged in the assessment made under section 73.

(c) has been paid by a person under section 12A.

Rev.

2012] Income Tax CAP.

470 95 (2) If any citizen of Kenya chargeable to tax in Kenya for any year of income on employment income or income in respect of an activity under section 10(e) of this Act accrued in or derived from another country proves to the satisfaction of the Commissioner that he has paid tax in such other country for such year of income in respect of the same income, he shall be entitled to set-off by way of credit of the same tax against the tax charged in Kenya on such income.

(3) The tax chargeable on the income of any person in respect of which set-off is to be allowed under this section shall be taken to be the amount by which the tax chargeable (before set-off under this section) in respect of his employment income or income specied under section 10(e) is increased by the inclusion of such income in his employment income.

(4) Credit under this section shall not exceed the amount of tax payable in Kenya on such employment income or income in respect of an activity under section 10(e).

39A.

(Repealed by 8 of 2009, s.

26.) DDouble Taxation Relief 40.

(Repealed by 8 of 1978, s.

9.) 41.

(1) The Minister may from time to time by notice declare Special arrangements for relief from double that arrangements, specied in the notice and being arrangements that taxation.

have been made with the government of any country with a view to 7 of 1976, s.

2.

affording relief from double taxation in relation to income tax and other taxes of a similar character imposed by the laws of the country, shall, notwithstanding anything to the contrary in this Act or in any other written law, have effect in relation to income tax, and that notice shall, subject to the provisions of this section, have effect according to its tenor.

(2) The arrangements in the notice may include provisions for relief from tax for periods before the commencement of this Act or before the making of the arrangements.

(3) A notice under this section may be amended or revoked by a subsequent notice and an amending or revoking notice may contain such transitional provisions or termination date as appear to the Minister to be necessary or expedient.

(4) The Minister shall cause a copy of notice made under 96 [Rev.

2012 CAP.

470 Income Tax subsection (1) and of any subsequent notice made under subsection (3) to be laid, without delay, before the National Assembly.

Agreements for 41A.

The Minister may, by notice in the Gazette, from time to time exchange of information.

declare that arrangements specied in the notice, being arrangements 4 of 2012, s.17.

made with the government of any country with the view of exchanging information relating to income tax or other taxes of a similar character imposed by the laws of that country, shall, notwithstanding anything to the contrary in this Act or any other written law, have effect in relation to income tax, and that notice shall, subject to the provisions of this section, have effect accordingly.

Computation of 42.

(1) This section shall have effect where, under a special credits under special arrangement, foreign tax payable in respect of income derived by arrangements.

a person resident in Kenya is to be allowed as a credit against tax 7 of 1976, s.

2.

chargeable in respect of that income.

(2) (Deleted by 2 of 1976, s.

2) (3) The tax chargeable upon the income of a person in respect of which a credit is to be allowed under a special arrangement shall be the amount by which the tax chargeable (before allowance of the credit) in respect of his total income is increased by the inclusion of that income in his total income; but where foreign tax is payable at different rates on different parts of the total income of that person, the tax chargeable on that income shall be apportioned to each part in such amounts as the Commissioner may determine to be just and reasonable.

(4) A credit shall not exceed the lesser of the tax computed in accordance with subsection (3) or the foreign tax chargeable upon the income in respect of which the credit is to be allowed or upon each part of that income.

(5) Where (a) a special arrangement provides, in relation to dividends of some classes but not in relation to dividends of other classes, that foreign tax not charged directly or by deduction in respect of dividends is to be taken into account in considering whether any, and if so, what, credit is to be given against tax in respect of those dividends; and (b) a dividend is paid which is not of a class to which those arrangements so apply, then, if the dividend is paid to a company which controls, directly or indirectly, not less than one half of the voting power in the company Rev.

2012] Income Tax CAP.

470 97 paying the dividend, a credit shall be allowed as if that dividend were a dividend of a class in relation to which those arrangements so provide.

(6) A credit shall not be allowed under a special arrangement against tax chargeable upon the income of a person for a year of income if he elects by notice in writing to the Commissioner that credit shall not be allowed in the case of his income for that year of income.

(7) Where the amount of a credit or exemption given under a special arrangement is rendered excessive or insufcient by reason of an adjustment of the amount of income tax, or tax of a similar nature payable either in Kenya or elsewhere, nothing in this Act limiting the time for the making of assessments or claims for relief shall apply to an assessment or claim to which the adjustment gives rise, being an assessment or claim made within six years from the time when all those assessments, adjustments and other determinations have been made, whether in Kenya or elsewhere, that are material in determining whether any and, if so, what credit is to be given.

(1).

(8) In this section, credit means a credit mentioned in subsection 43.

Subject to section 42(7), a claim for an allowance by way Time limit.

of credit under this Part shall be made to the Commissioner within six years from the end of the year of income to which it relates.

PART VIIPERSONS ASSESSAblE 44.

Where under this Act the income of a person is chargeable to Wifes income, etc.

tax, that income shall, subject to this Act, be assessed on, and the tax thereon charged on, that person.

45.

(1) The income of a married woman living with her husband Income of a person shall be deemed to be the income of the husband for the purpose of assessed on him.

ascertaining his total income, and shall be assessed on, and the tax 4 of 1999, s.

38, thereon charged on, the husband; but that part of the total amount of 6 of 2005, s.

28.

tax charged on the husband as bears the same proportion to the total amount as the amount of the income of the wife bears to the amount of the total income of the husband may, if due and not paid, be collected from the wife or, if she is dead, from her executors or administrators, not withstanding that no assessment has been made upon her; and the provisions of this Act relating to the collection and recovery of tax shall apply to that part of the tax as if it were tax the due date for the payment of which is a date thirty days after the date of a notice served on the wife, or her executors or administrators, as the case may be, requiring payment: 98 [Rev.

2012 CAP.

470 Income Tax Provided that the income of a married woman shall not be deemed to be the income of the husband where such married woman opts to le a separate return from that of her husband.

(2) Where a married woman is not living with her husband, each spouse shall, for the purposes of the Act, be treated as if he or she were unmarried.

(3) For the purposes of this Act, a married woman shall be treated as living with her husband unless (a) they are separated under an order of a court of competent jurisdiction or under a written agreement of separation; or (b) they are separated in such circumstances that the separation is likely to be permanent; or (c) she is a resident person and her husband is non-resident person.

Income of 46.

The income of an incapacitated person shall be assessed on, incapacitated person.

and the tax thereon charged on, that person in the name of his trustee, guardian, curator, committee or receiver appointed by a court, in the same manner and to the same amount as that incapacitated person would have been assessed and charged if he were not an incapacitated person.

Income of non- 47.

(1) The income of a non-resident person shall be assessed on, resident person.

and the tax thereon charged on, that person either in his name or in the name of his trustee, guardian, curator or committee, or of any attorney, factor, agent, receiver or manager.

(2) The master of a ship, or the captain of an aircraft, owned or chartered by a non-resident person who is chargeable to tax under section 9 shall (though not to the exclusion of any other agent) be deemed the agent of that non-resident person for the purposes of this section.

(3) Nothing in this section shall render a non-resident person assessable or chargeable in the name of a broker, general commission agent or other agent where that broker, general commission agent or other agent is not the normal agent of the non-resident person.

Income of deceased 48.

(1) The income accrued to, or received prior to the date of the person, etc.

death of a deceased person which would, but for his death, have been assessed and charged to tax on him for a year of income shall, subject to section 79 (1)(d), be assessed on, and the tax charged on, his executors or administrators for that year of income.

Rev.

2012] Income Tax CAP.

470 99 (2) An amount received by the executors or administrators of a deceased person which would, but for his death, have been his income for a year of income shall be deemed to be income of his executors or administrators and shall be assessed on, and the tax charged on them for that year of income.

(3) Where executors or administrators distribute the estate of a deceased person before a change in the rate of tax at which they are liable in respect of a year of income, they shall not be liable in respect of any increased tax resultant from that change.

49.

Where two or more persons are trustees, an assessment made Liability of joint on the trustees in that capacity may be made on any one or more of them trustees.

but each trustee shall be jointly and severally liable for the payment of tax charged in the assessment 50.

A person in whose name the income of another person Liability of person in is assessable under this Act shall be responsible, in relation to the whose name income assessment of that income, for doing all this things that are under this of another person Act required to be done by a person whose income is chargeable to tax, assessed.

and shall be responsible for the payment of tax so charged on him to the extent of any assets of that other person which are in his possession on, or may come into his possession after, the date of the service of a notice of assessment on him.

51.

A person responsible under this Act for the payment of tax Indemnication of on behalf of that other person may retain out of money coming to his representative.

hands on behalf of that other person so much thereof as is sufcient to pay the tax, and that person is hereby indemnied against any claim whatsoever for all payments so made by him.

PART VIIIRETuRNS AND NOTICES 51A.

(1) For the purposes of this Act Returns, records, etc.

to be in ofcial (a) any return, record or other document required to be kept or languages.

4 of 2012, s.

18 produced shall be in either of the ofcial languages; (b) the unit of currency in any such return, record or other document shall be the Kenya shilling.

(2) In subsection (1) (a), the expression ofcial languages shall have the meaning assigned to it in Article 7 of the Constitution.

52.

(1) The Commissioner may, by notice in writing, require a Returns of income and notice of 100 [Rev.

2012 CAP.

470 Income Tax chargeability.

person to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return of income for any year of income containing a full and true statement of the income of that person, including income deemed to be his under this Act, liable to tax and of those particulars that may be required for the purposes of this Act; and that return shall include a declaration signed by that person, or by the person in whose name he is assessable , that the return is a full and true statement; but where a person carrying on a business has made a provisional return of income, the return of income under this subsection may be made within a period not exceeding nine months from the date to which he makes up the accounts of that business.

(2) In the case of the executors or administrators of a deceased person, or of the liquidator of resident company, or of a bankrupt, or of a person whom the Commissioner has reason to believe is about to leave Kenya, the Commissioner may, by notice in writing, require him to furnish a return of income at any time whether before or after the end of the year of income to which that return relates.

(3) A person chargeable to tax for a year of income who (a) within four months after the end of that year of income; or (b) being a person carrying on a business the accounting period for which ends on some day other than 31st December in that year of income, has not made a provisional return of income for that year of income within four months of the end of that accounting period, has not been required to make a return of income for that year of income under subsection (1) shall, within fourteen days after the expiration of the period of four months, give notice in writing to the Commissioner that he is so chargeable: Provided that an employee shall not be required to give notice (i) if he had no income chargeable to tax for that year of income other than from emoluments; and (ii) if the tax payable in respect of those emoluments has been recovered by deduction under section 37.

(4) Where a business is carried on by two or more persons in partnership, the Commissioner may, by notice in writing, require the precedent resident partner, that is the partner who, of the resident partners Rev.

2012] Income Tax CAP.

470 101 (a) is rst named in the agreement of partnership; or (b) if there be no agreement, is specied by name or initials singly, or with precedence to the other partners, in the usual name of the partnership; or (c) is rst named in any statement required for the purposes of registration of the business under any law of Kenya; or (d) is the precedent resident active partner if the partner named with precedence is not an active partner, to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return of income of the partnership, ascertained under this Act as if the partnership were a person liable to tax, for any year of income prior to that in which the notice is served containing a full and true statement of the income and of such particulars as may be required for the purposes of this Act, including the names and addresses of the partners together with the amount of the share of the income to which each partner was entitled for that year of income 52.

A (Repealed by 8 of 1996, s.

40.) 52.

B (1) Notwithstanding any other provision of this Act Final return with self- assessment.

(a) every individual chargeable to tax under this Act shall for any 8 of 1997, s.

41, 7 of 2002, s.

44, year of income commencing with the year of income 1992, 4 of 2012, s.

19.

furnish to the Commissioner a return of income, including 57 of 2012, s.

18, a self assessment of his tax from all sources of income, not 4 of 2012, s.

19, later than the last day of the sixth month following the end 57 of 2012, s.

18 of his year of income; and (b) every person, other than an individual chargeable to tax under the Act, shall for any accounting period commencing on or after 1st January, 1992 furnish to the Commissioner a return of income, including a self-assessment of his tax on such income, not later than the last day of the sixth month following the end of his accounting period.

(2) The return of income together with the declared self- assessment of tax on the declared income, shall be prepared on such a form or forms as shall be prescribed by the Commissioner.

(3) The declared self-assessment shall be calculated by reference to the appropriate relief and rates of tax in force for the year of income.

102 [Rev.

2012 CAP.

470 Income Tax (4) Every company liable to tax under this Act, shall also include with the self-assessment and return of income an assessment and return of any compensating tax due with respect to such tax year and the compensating tax so calculated shall be payable at the due date for the self-assessment.

(5) The Commissioner may, where he considers appropriate, send to any person to whom this section applies in respect of any year of income a form or forms to enable that person to furnish the required return; and failure by the Commissioner to send the return form or forms shall not affect the obligation of that person to furnish the required return by the date specied in this section.

Provisional returns.

53.

(1) Subject to this section, and without prejudice to his other 2 of 1975, s.

5.

powers under this Part, the Commissioner may, by notice in writing, require a person to furnish him for any year of income with a provisional return of income; but an employee shall not be required to furnish a return (a) if to the best of his knowledge and belief he will have no income chargeable to tax for that year of income other than from emoluments; and (b) if he has reasonable grounds to believe that the whole of the tax payable by him in respect of those emoluments will be recovered by deduction under section 37.

(2) A provisional return of income for any year of income (a) shall be furnished (i) in a case to which section 27(1) applies, not later than three months from the date to which the person mak- ing the return has made up his accounts in that year of income; and (ii) in any other case, not later than the 31st March following that year of income.

(b) shall contain an estimate (i) of the income of the person making the return, including income deemed to be his under this Act, charged to tax, based on all the information available to him at the date on which the return is made and which he believes to be true; and (ii) of the tax chargeable on that income, calculated by Rev.

2012] Income Tax CAP.

470 103 reference to the appropriate allowances and rates of tax in force at the date of the return and where the person making the return has instalment tax for that year of income, the provisional tax payable will be reduced by the amount of that instalment tax; and (c) shall include a declaration by the person making the return or by the person in whose name he is assessable that the provisional return contains a full and true estimate to the best of his knowledge and belief.

(3) A person who might be required to furnish a provisional return of income and who has not received a notice under subsection (1) within the period specied in subsection (2)(a) shall, within fourteen days of the expiration of that period, notify the Commissioner in writing that he has not received a notice.

(4) Notwithstanding any other provisions of this Act, with effect from the year of income commencing o the 1st January, 1993, any person required to submit a self-assessment return shall not be required to submit a provisional return or give a notice under section 53(3).

54.

(1) Where a person who carries on a business makes a return Documents to be for a year of income, and accounts of his business for an accounting included in return of period relating to that year of income have been prepared or examined income.

by another person in a professional capacity, then he shall furnish with 13 of 1979, s.

5, that return of income 18 of 1979, s.

2, 6 of 2001, s.

51, 4 of 2004, s.

52, (a) a copy of the accounts signed by himself and by that 8 of 2008, s.

46, 57 of 2012, s.

19.

other person together with a certicate signed by that other person (i) where the accounts were prepared by the other person, specifying the nature of the books of accounts and docu- ments from which the accounts were so prepared; and (ii) stating whether and subject to what reservations, if any, he considers that the accounts present true and fair view of the gains or prots from the business for that account- ing period; (b) in the case of a company or partnership, a certicate specifying the nature and amounts of all payments of whatever kind made, and the nature of any benet, advantage, or facility of whatever kind granted, in the case of a company to the directors thereof and to employees whose emoluments 104 [Rev.

2012 CAP.

470 Income Tax are at the rate of eighty thousand shillings a year or more, or, in the case of a partnership, to the partners; and the certicate shall be signed by a majority of the directors or partners (of whom one shall be the partner who signed the return of income of the partnership), as the case may be, or, if there are less than three directors or partners, by all the directors or partners: Provided that, in the case of a company, other than a private company, or a wholly owned subsidiary of that company, the certicate signed referred to in paragraph (b) shall not be furnished unless the Commissioner in a particular case so requires.

(2) The Commissioner may, by notice in writing, require a person who has made a return of income and to whom subsection (1) applies to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a certicate signed by the professional person who prepared or examined the accounts a copy of which was sent with the return (a) stating whether to the best of his knowledge and belief the certicate referred to in subsection (1)(b) is true and correct; (b) where the accounts were prepared by a professional person, recording the extent of his verication of the books of accounts and documents produced to him; (c) where the accounts were examined by a professional person, specifying the nature of the books of account and documents produced to him and the extent of his examination thereof.

(3) Where a professional person refuses to give a certicate referred to in subsection (1) or (2) he shall furnish to the person who made the return a statement in writing of his refusal and of the reasons therefor and the person who made the return shall send the statement to the Commissioner.

(4) Where a person who carries on a business makes a return of income for a year of income and accounts of his business for an accounting period relating to that year of income have not been prepared or examined by another person in a professional capacity, he shall furnish with the return of income such accounts of his business for the accounting period relating to that year of income as are necessary to support the information contained in the return together with Rev.

2012] Income Tax CAP.

470 105 (a) a certicate signed by himself (i) specifying the nature of the books of account and docu- ments from which the accounts were prepared; (ii) stating whether the accounts reect all the transactions of his business and present a true and fair view of the gains or prots from the business for that accounting period.

(b) in the case of a company or partnership, a certicate specifying the nature and amounts of all payments of whatever kind made to, and the nature of any benet, advantage, or facility, of whatever kind, granted, in the case of a company, to the directors thereof and to employees whose emoluments are at the rate of eighty thousand shillings a year or more, or, in the case of a partnership, to the partners; and the certicate shall be signed by a majority of the directors or partners (of whom one shall be the partner who signed the return of income of the partnership), as the case may be, or if there are less than three directors or partners, by all the directors or partners.

(4A) (Deleted by 57 of 2012, s.

19).

(4B) (Deleted by 57 of 2012, s.

19).

(5) For the purposes of this section accounts means a balance sheet or statement of assets and liabilities, and trading account, prot and loss account, receipts and payments accounts, or other similar account however named; professional person, in the case of a company, means a holder of a practicing certicate or a written authority to practice issued in Cap.

531.

accordance with the provisions of the Accountants Act.

54A.

(1) A person carrying on a business shall keep records of all Keeping of records receipts and expenses, goods purchased and sold and accounts, books, of receipts, expenses, deeds, contracts and vouchers which in the opinion of the Commissioner, etc.

are adequate for the purpose of computing tax.

(2) Any person who contravenes the provisions of subsection (1) shall be liable to such penalty, not exceeding twenty thousand shillings, as the Commissioner may deem t to impose.

55.

(1) Where a person appearing to be chargeable with tax fails Books and accounts.

or refuses to keep the records, books or accounts which, in the opinion 106 [Rev.

2012 CAP.

470 Income Tax of the Commissioner are adequate for the purpose of computing tax, the Commissioner may, by notice in writing, require that person to keep the records, books, and accounts, and to keep them in the language, specied in the notice.

(2) A person carrying on a business shall preserve every book of account, and every document which is essential to the explanation of any entry in any book of account, relating to the business for a period of not less than ten years after the year of income to which that book of account or document relates: Provided that, subject to section 56, this section shall not require the preservation of a document or book of account (i)in respect of which the Commissioner has notied that person in writing that its preservation is not required; or (ii) in the case of a company which has gone into liquida- tion and has been nally dissolved or in the case of the cessation of a business other than one carried on by a company, for more than three months after the date on which the person having custody of the documents or books of account relating to the company or business as the case may be, informs the Commissioner that he proposes to destroy them.

For the purposes of this section the record records of all receipts and expenses, goods purchased and sold and accounts, books, deeds contract and vouchers.

Production and 56.

(1) For the purpose of obtaining full information in respect preservation of of the income of a person or class of persons, the Commissioner may, books, attendances, by notice in writing, require, in the case of the income of a person, that etc.

person or any other person, and in the case of a class of persons, any 7 of 2002, s.

45.

person (a) to produce for examination by the Commissioner at the time and place specied in the notice, any accounts, books of account, and other documents which the Commissioner may consider necessary and the Commissioner may inspect such accounts, books of account or other documents and may take copies of any entries therein; (b) to produce forthwith for retention by the Commissioner for such period as may be reasonable for their examination any accounts, books of account and other documents which the Rev.

2012] Income Tax CAP.

470 107 Commissioner may specify in the notice; (c) not to destroy, damage or deface on or after service of the notice any of the accounts, books of account and other documents so specied without permission of the Commissioner in writing: Provided that in the case of a banker the powers of the Commissioner under this section shall be limited to the inspection of books or documents at the place at which they are kept and to the taking of copies of any relevant entries therein.

(2) The Commissioner may, by notice in writing, require a person entitled to or in receipt of income, whether on his own behalf or as representative of another person, to attend at the time and place specied in the notice for the purpose of being examined as to his income or the income of the other person or any transaction or matter appearing to be relevant thereto.

(3) The Commissioner may exercise the powers conferred on him by this section in relation to a year of income at any time prior to the expiry of seven years after that year of income; but where the Commissioner has reasonable cause to believe that fraud or gross or wilful neglect has been committed in connection with, or in relation to, tax for a year of income, the Commissioner may exercise those powers in relation to any year of income.

57.

(1) The Commissioner may, by notice in writing, require an Return as to salaries, employer or any other person making the payments herein referred to, pensions, etc.

to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return containing (a) the names and addresses of all persons to whom or in respect of whom payments and allowances were made by him in respect of their employment, and the amounts of the payments and allowances made to each of them; (b) the names and addresses of all persons to whom he paid pensions in respect of past employment with him or with any other person and the amount of the pension paid to each of them; but the Commissioner may by notice in writing exclude from the return any class of person or payment or allowance.

(2) For the purposes of this section, references in subsection (1) 108 [Rev.

2012 CAP.

470 Income Tax (a) to payments and allowances made to persons in respect of their employment include all payments, and all benets, advantages and facilities which are referred to in section 5(2) (a), (b), (c) and (e); (b) to persons employed include, in relation to a company, a director of that company.

(3) By notice published in two successive issues of the Gazette, the Commissioner may require all employers, or any employer or class of employer, to furnish him within a reasonable time, not being less than thirty days from the date of publication of the second notice, with a written return containing the name and address of the employer and the number of his employees from whose emoluments tax is to be deducted in accordance with section 37 and with such other information as the Commissioner may by that notice require.

Return as to fees, 58.

(1) The Commissioner may, by notice in writing, require a commissions, person carrying on a business to furnish him within a reasonable time, royalties, etc.

not being less than thirty days from the date of service of the notice, with a return of all payments made by that person of any kind specied in the notice, being (a) payments made in the course of the business for services rendered, or in anticipation of services to be rendered, by persons not employed in the business; or (b) payments for services rendered, or in anticipation of services to be rendered, in connection with the formation, acquisition, development, or disposal of the business or a part of it, by persons not employed in the business; or (c) periodical or lump sum payments in respect of any royalty.

(2) A return made under this section shall give the names and addresses of all persons to whom payments were made, the amounts of the payments and such other particulars as may be specied in the notice.

(3) For the purposes of this section (a) references to payments for services include references to payments in the nature of commission of any kind and references to payments in respect of expenses incurred in connection with rendering of services; and (b) references to the making of payments include references to Rev.

2012] Income Tax CAP.

470 109 the giving of any form of valuable consideration, and the requirement imposed by subsection (2) to state the amount of a payment shall, in relation to any consideration given otherwise than in the form of money, be construed as a requirement to give particulars of the consideration.

59.

The Commissioner may, by notice in writing, require a person Occupiers return who is the occupier of premises to furnish him within a reasonable time, of rent.

not being less than thirty days from the date of service of the notice, with a return containing (a) the name and address of the owner or lessor of the premises; and (b) a full and true statement of rent or any other consideration payable for the occupation thereof.

60.

The Commissioner may, by notice in writing, require a Return of lodgers and person who provides accommodation for a lodger or inmate to furnish inmates.

him within a reasonable time, not less than thirty days from the date of service of the notice, with a return containing the name of every lodger or inmate who is at the date of the notice resident in his house, hotel or institution, and who has (except for temporary absences) been so resident throughout the three months prior to the date of the notice.

61.

The Commissioner may, by notice in writing, at any time Return of income require a person who is in receipt of income as the representative of, or received on account on behalf of, another person who is chargeable to tax in respect thereof, of other persons.

or who would be so chargeable if he were a resident person, to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return containing (a) a full and true statement of the income; and (b) the name and address of the person to whom it belongs.

62.

The Commissioner may, by notice in writing, require a person Return as to income to furnish him within a reasonable time, not being less than thirty days exempt from tax.

from the date of service of the notice, with a return containing a full and true statement (a) all of the income of that person which is exempt from tax or which that person claims to be exempt; (b) of all particulars which the Commissioner may specify in the notice in relation to that income and in relation to any 110 [Rev.

2012 CAP.

470 Income Tax assets from which that income is derived.

Return in relation to 63.

The Commissioner may, by notice in writing, require the settlements.

trustees of, or a party to, a settlement referred to in section 25 or 26 to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return containing such particulars as he may consider necessary for the purposes of those sections.

Return in relation to 64.

The Commissioner may, by notice in writing, require the registered pension trustees of a registered pension fund or pension scheme and an employer fund, etc.

who contributes to that fund to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return containing (a) the name and place of residence of every person in receipt of any payment made under the regulations of the fund or scheme; (b) the amount and nature of payment; (c) a copy of the accounts of the fund or scheme up to the last date prior to the notice to which the accounts have been made up; and (d) such further information and particulars in connection with the fund or scheme or the regulations relating thereto as the Commissioner may require.

Return of annuity 65.

The Commissioner may, by notice in writing, at any time contract benets.

require a person by whom benets are payable under an annuity contract to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return giving the full name and address of each person to whom an annuity has been paid and the amount of the annuity so paid during any year of income.

Return of resident 66.

The Commissioner may, by notice in writing, at any time company dividends.

require a resident company which pays a dividend to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return giving the full name and address of each shareholder to whom a dividend was paid and, in respect of each shareholder, full particulars of his shareholding at the date of declaration of the dividend, the gross amount paid or payable to him, the tax deducted thereupon and any other particulars that the Commissioner may require, as notied generally by notice published in the Gazette or as specied by notice in writing to a particular resident company.

Rev.

2012] Income Tax CAP.

470 111 67.

(1) The Commissioner may, by notice in writing, require Return as to interest a person carrying on a business who, in the ordinary course of the paid or credited by operation thereof, receives or retains money in circumstances that banks, etc.

interest becomes payable thereon, and in particular, a person carrying 8 of 1978, s.

9.

on the business of banking, to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return of all interest paid or credited by that person during a year specied in the notice in the course of his business, or any part of his business that may be so specied, on money received or retained in Kenya giving the names and addresses of the persons to whom the interest was paid or credited and stating, in each case, the amount of the interest; but the year specied in the notice shall not be a year ending more than three years before the date of the service of the notice.

(2) Without prejudice to the powers conferred by subsection (1), a separate notice may be served under that subsection as respects the transactions carried on at any branch of a business that may be specied in the notice, and that separate notice shall, if served on the manager or other person in charge of the branch, be deemed to have been duly served on the person carrying on the business, and where a separate notice is so served as respects the transactions carried on at any branch, a notice subsequently served under subsection (1) on the person carrying on the business shall not be deemed to extend to a transaction to which the separate notice extends.

(3) This section shall, with any necessary adaptation, apply in relation to the Kenya Post Ofce Savings Bank, and shall have effect notwithstanding anything in any written law precluding the disclosure of the name of a depositor or of information in relation to his deposit.

68.

(1) The Commissioner may, by notice in writing, require a Return as to building society to furnish him within a reasonable time, not being less dividends paid by than thirty days from the date of service of the notice, with a return building societies.

of dividends paid or credited during a year specied in the notice in respect of shares held (a) in the case of a foreign building society, by a person who is resident in Kenya; and (b) in the case of a resident building society, by any person, and the return shall give the names and addresses of the persons to whom the dividends were paid or credited and shall state, in each case, the amounts of the dividends; but the year specied in the notice shall not be a year ending more than three years before the date of the service of the notice.

(2) For the purposes of this section 112 [Rev.

2012 CAP.

470 Income Tax Cap.

489.

foreign building society means a building society registered under section 75 of the Building Societies Act; resident building society means a building society registered under section 6 of that Act.

69.

(1) The Commissioner may, by notice in writing, require an Access to ofcial information.

ofcer in the service of the Government or of a local authority or other 8 of 1997, s.

42.

public body (a) to permit the Commissioner or a person authorized by him to examine all registers, books, accounts, or records in the possession or control of the ofcer and take such notes and extracts as may be considered necessary by the Commissioner; and (b) to supply such particulars as may be required for the purpose of this Act which may be in the possession of that ofcer; but no ofcer shall under this section be obliged to disclose particulars as to which he is under a statutory obligation to observe secrecy.

(2) For the purpose of obtaining full nancial information from the Government or local authority or other public body, the Commissioner may, by notice in writing, at any time require an ofcer in the service of the Government or of a local authority or other public body, within a reasonable time, not being less than thirty days after the date of service of the notice (a) to furnish him or a person authorized by him with such nancial information as may be considered necessary by the Commissioner; and (b) to supply such further particulars as may be required in respect of such nancial information.

(3) Where a notice has been served under subsection (2), the Commissioner may, by a further notice in writing served on the ofcer, extend the period in which the information is to be furnished.

(4) Subject to subsection (3), where any person upon whom a notice under subsection (2) has been served fails to comply with such notice, the Commissioner may impose a penalty equal to the higher of two hundred thousand shillings or two times the amount of tax lost as a result of the failure to comply, and the provisions of this Act relating to the collection and recovery of tax shall also apply to the collection Rev.

2012] Income Tax CAP.

470 113 and recovery of the penalty as if it were tax due from the Government or local authority or public body in whose service the ofcer is engaged.

70.

(1) The Commissioner may, by notice in writing, require a Further returns and extension of time.

person to furnish him within a reasonable time specied in the notice, not being less than thirty days from the date of service of the notice, with further returns or particulars in relation to any matter contained in a return made under this Act, or in relation to any transactions or matters appearing to the Commissioner to be relevant to the ascertainment of the income of any person.

(2) Where a notice has been served under this Part requiring a return to be made within a specied number of days, the Commissioner may, by a further notice in writing served on the person, extend the period in which the return is to be made.

71.

A return, statement, or form, purporting to be furnished under Return deemed to this Act by or on behalf of a person shall for all purposes be deemed be furnished by due to have been furnished by that person or by his authority, as the case authority.

may be, unless the contrary is proved, and a person signing the return, statement, or form, shall be deemed to be cognizant of all matters contained therein.

72.

(1) A person who, in relation to a year of income, fails Additional tax in event of failure to (a) to furnish a return of income or to give a notice to the furnish return or Commissioner as required by section 52 and section 52B fraud in relation to a return.

shall, be charged with additional tax equal to ve per cent 13 of 1979, s.

5, of the normal tax: 4 of 1993, s.

48, 8 of 1997, s.

43, Provided that in calculation of the additional tax for 4 of 1999, s.

39, purposes of this section, the normal tax shall be reduced 9 of 2000, s.

49, by the amounts already paid and withholding tax credits; 6 of 2001, s.

52, 7 of 2002, s.

46, (b) to furnish a provisional return of income or to give a notice 4 of 2004, s.

53, to the Commissioner as required by section 53 shall, for 6 of 2005, s.

29, each month or part thereof from the commencement of the 8 of 2009, s.

27.

failure up to the date on which the Commissioner makes a provisional assessment for the year of income under section 74(3), or an assessment under section 73, whichever is the earlier, be charged with additional tax equal to three per cent of the normal tax in the provisional assessment or assessment, as the case may be: Provided that 114 [Rev.

2012 CAP.

470 Income Tax (i) if the Commissioner is satised that owing to absence from Kenya, sickness or any other reasonable cause the person was prevented from furnishing the return or giving notice within the required period, the Com- missioner may at any time remit the whole or any part of the additional tax up to a maximum of ve hundred thousand shillings per person per annum; and (ii) the Commissioner may remit any additional tax in ex- cess of ve hundred thousand shillings per person per an- num with the prior written approval of the Minister; and (iii) the Commissioner shall make a quarterly report to the Minister of all additional tax remitted during that quarter.

(2) A person who, in relation to a year of income, omits from his return of income any amount which should have been included therein, or claims any personal relief to which he is not entitled or at any time makes an incorrect statement in relation to any matter affecting his liability to tax shall, where the omission, claim or statement was due to fraud or to gross neglect, be charged for that year of income with an amount of tax not exceeding two times the difference between the normal tax chargeable on the basis of the return made by him, the personal reliefs claimed by him or the statement affecting his liability to tax, as the case may be, and the normal tax properly chargeable in respect of his total income under this Act; and a person who, in his return of income for a year of income, deducts or sets off any amount the deduction or set-off whereof is not allowed under this Act, or shows as an expenditure or loss any amount which he has not in fact expended or lost, shall be deemed for the purposes of this subsection to have omitted that amount from his return of income.

(3) Where a failure, omission, claim, statement, deduction or set-off as is referred to in subsections (1) and (2) has been made in connection with a return of income required under this Act to be furnished by a person on behalf of another person, the other person shall be liable for additional tax charged under this section.

(4) The additional tax charged under this section (a) shall be charged in an assessment or provisional assessment made under this Act whether or not proceedings are commenced for an offence against this Act arising out of the same facts; and (b) shall be payable in addition to the normal tax and shall be levied and collected as if it were normal tax; Rev.

2012] Income Tax CAP.

470 115 but the additional tax shall be deemed not to be tax paid or payable for the purposes of section 11, 36, 39, 41 or 42, or of calculating a ne under section 111(1).

(5) Notwithstanding anything in Part X, where in an appeal against an assessment which includes additional tax one of the grounds of appeal relates to the charge of that additional tax, the decision of the local committee or Court, as the case may be, in relation to that ground of appeal shall be conned to the question (a) where additional tax has been charged under subsection (1), as to whether or not there was a failure within the meaning of that subsection; or (b) where additional tax has been charged under subsection (2), as to whether or not the omission, claim, statement, deduction or set-off which gave rise to the charge was due to fraud or gross neglect, and where that question is decided in favour of the person concerned no additional tax shall be payable.

(6) (Deleted by 4 of 2004, s.

53).

(7) In this section normal tax means tax charged under this Act from this section and additional tax means tax charged under this section in addition to the normal tax.

72A.

Any person who, in relation to any year of income, Offences in respect knowingly omits from his return of income any amount which should of failure to furnish have been included or claims any relief to which he is not entitled, or return or fraud in makes any incorrect statement which affects his liability to tax, including relation to a return.

compensating tax, shall be guilty of an offence and liable to additional tax equal to double the difference between the tax chargeable according to the return made by him, and the normal tax properly chargeable in respect of the total income assessable under this Act.

72B.

(1) Where the additional tax charged under sections 72 and Penalty for the 72A results from the failure, omission, claim, statement or deduction negligence of which arises due to the negligence or disregard of law by a person who authorized tax agent.

is an authorized tax agent, such a person shall be liable to a penalty equal to one half of such additional tax but in any case not less than one thousand shillings and not exceeding fty thousand shillings with respect to each such return, statement or other document as shall be the subject of such additional tax.

116 [Rev.

2012 CAP.

470 Income Tax Provided that nothing in this section shall affect the liability to tax of the person subject to additional tax under section 72.

Penalty on 72C.

(1) Subject to the Twelfth Schedule, a penalty of twenty underpayment of percent of the difference between the amount of instalment tax payable in instalment tax.

8 of 1997, s.

44, respect of a year of income as specied in section 12, and the instalment 9 of 2000, s.

50., tax actually paid multiplied by one hundred and ten per cent shall be 4 of 2012, s.

20.

payable.

(2) Where the Commissioner is satised that the difference referred to in subsection (1) was due to reasonable cause, he may remit the whole or part of the penalty payable under this section, and where for a year of income the difference arises wholly or partly from an estimate of tax to be charged made before any change in any allowance, relief or rate of tax, the Commissioner may remit the interest charged thereon to the extent to which it is attributable to such a change: Provided that (a) the Commissioner may remit up to a maximum of one million ve hundred thousand shillings per person per annum of the penalty or interest; and (b) the Commissioner may remit any amount of penalty or interest in excess of one million ve hundred thousand shillings with the prior written approval of the Minister; and (c) the Commissioner shall make a quarterly report to the Minister of all penalties and interest remitted during that quarter.

Penalty on paid tax.

72D.

Where any amount of tax remains unpaid after the due date 8 of 1997, s.

45, a penalty of twenty percent shall immediately become due and payable: 10 of 2010, s.

27.

Provided that (a) in the case where the instalment penalty under section 72C applies, the penalty under this section shall not apply except to the extent that any such instalment penalty has not been paid by the due date for the self-assessment of tax under section 52B; (b) this section shall not apply in the case of penalties imposed for breach of any other provision of this Act.

Rev.

2012] Income Tax CAP.

470 117 PART Ix ASSESSMENTS 73.

(1) Save as otherwise provided, the Commissioner shall assess Assessments.

every person who has income chargeable to tax as expeditiously as possible after the expiry of the time allowed to that person under this Act for the delivery of a return of income.

(2) Where a person has delivered a return of income, the Commissioner may (a) (i) accept the return and deem the amount that person has declared as his self-assessment in which case no further notication need be given; or (ii) where the return is in respect of a year of income prior to 1992, accept that return and assess him on the basis thereof; (b) if he has reasonable cause to believe that the return is not true and correct, determine, according to the best of his judgement, the amount of the income of that person and assess him accordingly.

(3) Where a person has not delivered a return of income for a year of income, whether or not he has been required by the Commissioner so to do, the Commissioner considers that the person has income chargeable to tax for that year, he may, according to the best of his judgement, determine the amount of the income of that person and assess him accordingly; but the assessment shall not affect any liability otherwise incurred by that person under this Act in consequence of his failure to deliver the return.

74.

(1) Without prejudice to his powers under section 73, the Provisional Commissioner shall proceed to make a provisional assessment in respect assessments.

of every person as expeditiously as possible after the expiry of the time allowed to that person under this Act for the delivery of a provisional return of income.

(2) When a person has furnished a provisional return he shall thereupon be deemed to have been provisionally assessed under this section on the basis of the estimates contained in that return.

(3) Where a person has not submitted a provisional return of income for a year of income, whether or not he has been required by the Commissioner so to do, and the Commissioner considers that the person has income chargeable to tax for that year, he may, according to the best of his judgement, estimate the income of that person and make a provisional assessment upon him accordingly.

118 [Rev.

2012 CAP.

470 Income Tax Instalment 74A.

(1)Without prejudice to his powers under sections 73 and 74, assessment.

the Commissioner may proceed to make an instalment assessment for tax under section 12 in respect of any person after the expiry of the time allowed to that person under this Act for the payment of instalment tax.

(2) When a person has paid instalment tax under section 12 he shall thereupon be deemed to have been assessed for the purpose of instalment tax under this section on the basis of the amount of instalment tax paid; and (3) Where a person has not paid instalment tax for a year of income, and the Commissioner considers that the person has or will have income chargeable to tax for that year, he may, according to the best of his judgement, estimate the income of that person and make an instalment assessment upon him accordingly.

Minimum additional 74B.

Notwithstanding any other provisions of this Act, any tax or penalty.

4 of 2004, s.

54.

additional tax or penalty (but excluding any interest) charged shall not be less than one thousand shillings in the case of an individual or ten thousand shillings in any other case.

Assessment of person 75.

Where the Commissioner has reasonable cause to believe that about to leave or a person is about to leave Kenya, or has left Kenya and his absence is having left Kenya.

unlikely to be only temporary, and that person has not been assessed to tax on income chargeable to tax for a year of income, the Commissioner may, according to the best of his judgement, determine the amount of the income of that person for that year of income and assess him accordingly, but that assessment shall not affect the liability of that person otherwise arising under this Act.

Assessment in certain 75A.

(1) Notwithstanding any other provision of this Act, where cases.

the Commissioner has reason to believe that any tax payable by any 8 of 2009, s.

28.

person is at risk of non-payment (a) due to the imminent departure of the person from Kenya; or (b) where the person, being a company, is about to be liquidated or otherwise wound up or cease business; or (c) for any other sufcient cause, the Commissioner may, whether or not the due date for the payment of that tax has arrived, by notice in writing served on that person require that person to pay the tax within the time specied in the notice.

(2) Any person who fails to pay tax when required to do so under subsection (1) shall be guilty of an offence.

Rev.

2012] Income Tax CAP.

470 119 76.

The Commissioner shall not assess an employee for a year Assessment not to of income be made on certain employees.

(a) if that employee had no income chargeable to tax for that year of income other than income consisting of emoluments; and (b) if on the basis of those emoluments and the personal reliefs to which that employee is entitled the tax payable by that employee in respect of those emoluments has been recovered by deduction under section 37, unless, prior to the expiry of seven years after that year of income, that employee applies to the Commissioner to be assessed, whether in connection with a claim for repayment of tax or otherwise, or the Commissioner considers an assessment to be necessary or expedient so as to arrive at the correct amount of the tax to be charged upon or to be payable by that employee for that year of income.

76A.

The Commissioner shall not assess any person for any Assessment not to year of income on that portion of income which has been subject to be made on certain income.

withholding tax which is also a nal tax.

77.

Where the Commissioner considers that a person has been Additional assessed at a less amount, either in relation to the income assessed or assessments.

to the amount of tax payable than that at which he ought to be assessed, the Commissioner may, by an additional assessment, assess that person at such additional amount as, according to the best of his judgement, that person ought to be assessed.

78.

The Commissioner shall cause a notice of an assessment, Service of notice of provisional assessment or instalment assessment to be served on the assessment, etc.

person assessed, and the notice shall state the amount of income assessed and the amount of tax payable and shall inform the person assessed of his rights under section 84; but no notice need be served in the case of a person deemed to have been assessed under section 74 (2) or 74A (2) 79.

(1) An assessment may be made under this Act at any time Time limit for prior to the expiry of seven years after the year income to which the making assessment, assessment relates, but etc.

(a) where fraud or gross or wilful neglect has been committed by or on behalf of a person in connection with or in relation to tax for a year of income, an assessment in relation to that year of income may be made at any time; 120 [Rev.

2012 CAP.

470 Income Tax (b) in the case of income consisting of gains or prots from employment or services rendered, an assessment in relation thereon may be made at any time prior to the expiry of seven years after the year of income in which the gains or prots are received; (c) in any case to which the proviso to paragraph (d) of section 4, or paragraph 21 of the Second Schedule applies, an assessment in relation thereto may be made at any time prior to the expiry of seven years after the year of income in which the circumstances which gave rise to the assessment occurred; (d) in the case of an assessment made upon the executors or administrators of a deceased person in respect of the income of that person, the assessment shall be made prior to the expiry of three years after the year of income in which that deceased person died.

(2) The question whether an assessment has been made after the time set in this section for the making thereof shall be raised only on an objection made under section 84 and on any appeal consequent thereon.

Assessment list.

80.

(1) As soon as is reasonably practicable after the expiry of the time allowed under this Act for the delivery of returns of income in respect of each year of income, the Commissioner shall cause to be prepared a list of persons assessed to tax in respect of that year, and each list shall contain in relation to each person so assessed (a) his name and address; (b) the amount of income upon which assessment has been made; and (c) the amount of tax payable.

(2) In any proceedings, whether civil or criminal, under this Act, a document purporting to be an extract from an assessment list and certied by the Commissioner to be a true copy of the relevant entry in the list, shall be prima facie evidence of the matters stated therein.

Errors, etc., in 81.

(1) No assessment, warrant or other document purporting to assessment of be made, issued or executed under this Act shall be quashed, or deemed notices.

to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if it is in substance and effect in conformity with or according to the intent and meaning of this Act and if the person assessed or intended to be assessed or affected thereby Rev.

2012] Income Tax CAP.

470 121 is designated therein according to common intent and understanding.

(2) An assessment shall not be impeached or affected by reason of a (a) mistake therein as to (i) the name of the person assessed; or (ii) the description of any income; (b) variance between the assessment and the duly served notice thereof, which is not likely to deceive or mislead a person affected by the assessment.

PART x - ObjECTIONS, APPEAlS AND RElIEF FOR MISTAkES 82.

(1) The Minister may, by notice in the Gazette, establish a Local committees.

local committee for any area specied in the notice.

57 of 2012, s.

20.

(2) A local committee shall consist of a chairman and not more than eight other members appointed by the Minister.

(2A) A person shall be qualied for appointment as a member of the local committee if the person (a) holds a degree in taxation, nance, accounting or law from a university recognized in Kenya and has at least ve years experience in a related eld; (b) has met all tax obligations and has not been subject to an order for compounding tax offences; (c) is of high moral character and integrity; (d) is not an employee of the Kenya Revenue Authority; and (e) in the case of a former public servant, has completed three years since leaving employment.

(2B) A person shall cease to be a member of the local committee if the person (a) resigns from ofce by notice in writing addressed to the Minister; 122 [Rev.

2012 CAP.

470 Income Tax (b) becomes an employee of the Kenya Revenue Authority; (c) is absent for three consecutive sittings of the local committee without written notication to the Chairman; (d) is adjudged bankrupt by a court of competent jurisdiction; (e) is convicted of a criminal offence or of an offence under any tax law; (f) is unable to perform the duties of the ofce by reason of physical or mental inrmity; or (g) conducts himself in a manner inconsistent with continued membership of the local committee.

(3) A member of a local committee shall hold ofce for the period, not exceeding two years, specied in his appointment unless, prior to the expiration of that period (a) he resigns his ofce by written notication under his hand addressed to the Minister; or (b) the Minister, being satised that the member is unt by reason of mental or physical inrmity to perform the duties of his ofce, or that the member has failed to attend at least three consecutive meetings of the committee, revokes his appointment.

(4) The quorum for a meeting of a local committee shall be the chairman and two other members.

(5) The members of a local committee shall be entitled to receive such subsistence and travelling allowances as the Minister may determine.

(6) The members of a local committee shall not be personally liable for any act or default of the committee done or committed in good faith in the course of exercising the powers conferred by this Act.

(7) The Minister may make rules (a) prescribing the manner in which an appeal under this Act may be made to a local committee and the fees to be paid in respect of an appeal; Rev.

2012] Income Tax CAP.

470 123 (b) prescribing the procedure to be adopted by a local committee in hearing an appeal and the records to be kept by the committee; (c) prescribing the manner in which a local committee shall be convened and the places where and the time at which it shall hold sittings; (d) prescribing a scale of costs which may be awarded by a local committee; and (e) generally for the better carrying out of the provisions of this Act relating to local committees and appeals thereto.

83.

(1) The Minister may, by notice in the Gazette, establish a Tribunal The Tribunal.

to exercise the functions conferred upon it by this Act.

57 of 2012, s.

21.

(2) The Tribunal shall consist of a chairman and not less than two and not more than four other members appointed by the Minister.

(3) A member of the Tribunal shall hold ofce for the period, not exceeding two years, specied in his appointment unless, prior to the expiration of that period (a) he resigns his ofce by written notication under his hand addressed to the Minister; or (b) the Minister, being satised that the member is unt by reason of mental or physical inrmity to perform the duties of his ofce, or that the member has failed to attend at least three consecutive meetings of the Tribunal, revokes his appointment.

(4) The quorum for a meeting of the Tribunal shall be the chairman and two other members.

(5) The members of the Tribunal shall be entitled to receive such subsistence and travelling allowances as the Minister may determine.

(6) The members of the Tribunal shall not be personally liable for any act or default of the Tribunal done or committed in good faith in the course of exercising the powers conferred by this Act.

(7) The Minister may make rules (a) prescribing the manner in which an appeal shall be made to 124 [Rev.

2012 CAP.

470 Income Tax the Tribunal and the fees to be paid in respect of an appeal; (b) prescribing the procedure to be adopted by the Tribunal in hearing an appeal and the records to be kept by the Tribunal; (c) prescribing the manner in which the Tribunal shall be convened and the places where and the time at which sittings shall be held; (d) prescribing a scale of costs which may be awarded by the Tribunal; and (e) generally for the better carrying out of the provisions of this Act relating to the Tribunal and appeals thereto.

(8) The qualications and disqualications set out in sections 82(2A) and (2B) shall, with the necessary modications, apply with respect to the members of the Tribunal.

Notice of objection to 84.

(1) A person who disputes an assessment made upon him assesment under this Act may, by notice in writing to the Commissioner, object 6 of 2005, s.

30.

to the assessment.

(2) A notice given under subsection (1) shall not be a valid notice of Objection unless it states precisely the grounds of objection to the assessment and is received by the Commissioner within thirty days after the date of service of the notice of assessment; but if the Commissioner is satised that owing to the absence from Kenya, sickness or other reasonable cause, the person objecting to the assessment was prevented from giving the notice within that period and there has been no unreasonable delay on his part, the Commissioner may, upon application by the person objecting, and after deposit by him with the Commissioner of so much of the tax as is due under the assessment under section 92, or such part thereof as the Commissioner may require, and the payment of any interest due under section 94, admit the notice after the expiry of that period and the admitted notice shall be a valid notice of objection: Provided that the objection made within the thirty days shall not be valid unless it is accompanied by a return of income together with all the supporting documents, where applicable.

(3) A person aggrieved by the refusal of the Commissioner to admit a notice of objection under subsection (2) may, on depositing with the Commissioner if he so requires, the whole or such part as the Commissioner may require of the amount of tax assessed under the assessment to which objection is made and on paying any interest due under section 94, appeal against the refusal to a local committee, whose Rev.

2012] Income Tax CAP.

470 125 decision shall be nal.

(4) All the provisions of this Act relating to appeals against assessments shall, so far as they are applicable and subject to the nality of the decision of the local committee, have effect with respect to an appeal under subsection (3), and the local committee hearing the appeal may conrm the decision of the Commissioner or may direct that the notice concerned shall be a valid notice of objection.

85.

(1) Where a notice of objection has been received, the Powers of Commissioner may Commissioner on receipt of objection.

(a) amend the assessment in accordance with the objection; or (b) amend the assessment in the light of the objection according to the best of his judgement; or (c) refuse to amend the assessment (2) Where the Commissioner either (a) agrees to amend the assessment in accordance with the objection; or (b) proposes to amend the assessment in the light of the objection and the person objecting agrees with the Commissioner as to the proposed amendment, the assessment shall be amended accordingly and the Commissioner shall cause a notice setting out the amendment and the amount of the tax payable to be served on that person.

(3) Where the Commissioner (a) proposes to amend the assessment in the light of the objection and the person objecting does not agree with the Commissioner as to the proposed amendment, the assessment shall be amended as proposed by the Commissioner and he shall cause a notice setting out the amendment and the amount of the tax payable to be served on that person; or (b) refuses to amend the assessment, he shall cause a notice conrming the assessment to be served on that person.

126 [Rev.

2012 CAP.

470 Income Tax Right of appeal from 86.

(1) A person who has been served with a notice under Commissioners section 85(3) may determination of objection.

(a) if his assessment is based upon or consequent upon a 10 of 1986, s.

30, direction issued under section 23 or 24, appeal from the 4 of 2004, s.

55 decision of the Commissioner to the Tribunal; or (b) in any other case, appeal from that decision to the local committee appointed for the area in which he resides or, if he is a non-resident person, to a local committee appointed for the Nairobi Area, upon giving notice of appeal in writing to the Commissioner within thirty days after the date of service upon him of the notice under that subsection.

(2) A party to an appeal under subsection (1) of this section or under section 89(1) who is dissatised with the decision thereon may appeal to the Court against that decision upon giving notice of appeal to the other party or parties to the original appeal within fteen days after the date in which a notice of that decision has been served upon him; but an appeal to the Court under this subsection may be made only on a question of law or of mixed law and fact.

(3) Where a person other than the Commissioner has failed to give notice of appeal within a period specied in subsection (1) he may, after depositing with the Commissioner so much of the tax as is payable under section 92(6), or such part thereof as the Commissioner may require, and paying any interest due under section 94, apply to the local committee or the Tribunal, as the case may be, for an extension of the time in which to give the notice of appeal, and the local committee or the Tribunal may grant an extension on being satised that, owing to absence from Kenya, sickness or other reasonable cause, he was prevented from giving notice of appeal within the relevant period and that there has been no unreasonable delay on his part.

(4) Where a person other than the Commissioner has failed to give notice of appeal within the period specied in subsection (2) he may apply to the Court for an extension of the time in which to give notice of appeal and the Court may grant an extension on being satised (a) that he has paid the tax payable or required under section 92(6) (together with any interest charged under section 94); and (b) that he has paid the tax due under section 93(1)(c); and (c) that owing to absence from Kenya, sickness or other Rev.

2012] Income Tax CAP.

470 127 reasonable cause, he was prevented from giving notice of appeal within the relevant period; and (d) that there has been no unreasonable delay on his part.

87.

(1) In this section, appellate body means the Court, the Procedure on Tribunal or a local Committee.

appeals.

(2) In an appeal under section 86 (a) the appellant shall appear before the appellate body either in person or by an advocate on the day and at the time xed for the hearing of the appeal, but (i) if it be proved to the satisfaction of the appellate body, that owing to absence of the appellant from Kenya, sickness, or other reasonable cause, he is prevented from attending at the hearing of the appeal on the day and at the time xed for that purpose, the appellate body may postpone the hearing of the appeal for such reasonable time as it thinks necessary; (ii) in the case of an appeal to a local committee, the appellant may be represented by an agent authorized by him in writing; (b) the onus of proving that the assessment or decision appealed against is excessive or erroneous shall be on the appellant; (c) the appellate body may conrm, reduce, increase or annul the assessment concerned or make any other order thereon which it may think t; (d) the costs of the appeal shall be in the discretion of the appellate body; (e) the appellate body shall, within seven days of its decision, cause a notice of the decision and of the date thereof to be issued and that notice shall be served on the parties to the appeal; (f) where the decision of the appellate body results in an amendment to an assessment, the assessment shall be amended accordingly and the Commissioner shall cause a notice setting out the amendment and the amount of tax payable to be served on the person assessed.

128 [Rev.

2012 CAP.

470 Income Tax (3) An order made by the Court on an appeal shall have effect, in relation to the amount of tax payable under the assessment as determined by the judge, as a decree for payment of that amount, whether or not the amount of tax is specied in the decree.

Finality of 88.

(1) Where, in relation to an assessment assessment.

(a) no notice of objection has been given; or (b) a notice of objection has been given and (i) the assessment has been amended under section 85(2); or (ii) a notice has been served under section 85(3) but no appeal has been brought against it; or (iii) the assessment has been nally determined on appeal, the assessment as made, or so amended, or determined on appeal, as the case may be, shall be nal and conclusive for the purposes of this Act.

(2) Nothing in this section shall prevent the Commissioner from making an additional assessment for a year of income which does not involve reopening a matter which has been determined on appeal for that year of income; but where fraud or gross or wilful neglect has been committed by or on behalf of a person in connection with or in relation to tax for a year of income, the Commissioner may make an additional assessment on that person for that year of income notwithstanding that it involves reopening a matter which has been determined on appeal.

Application of appeal 89.

(1) A person aggrieved by procedure to other (a) a notice given by the Commissioner under section 55(1); or decisions, etc., of Commissioner.

(b) a refusal by the Commissioner to make a refund or 8 of 1978, s.

9.

repayment under section 105 or 106; or (c) an apportionment of an amount or sum by the Commissioner under the Second Schedule which affects, or may affect, the liability to tax of two or more persons; or (d) a determination by the Commissioner under paragraph 32(4) of the Second Schedule; or (e) a determination by the Commissioner under paragraph 12 of the Eighth Schedule, Rev.

2012] Income Tax CAP.

470 129 may appeal therefrom to a local committee.

(2) The provisions of this Act relating to appeals to a local committee against assessments shall have effect with respect to an appeal under this section as if it were an appeal against an assessment.

(3) Where an appeal is brought under subsection (1) against a decision or act of the Commissioner which affects, or is likely to affect, the income of more than one person (a) where the same local committee has jurisdiction with respect to all the persons concerned, the appeal shall be heard by that local committee; (b) where different local committees have jurisdiction with respect to the persons concerned, the appeal shall be heard by such one of those local committees as may be agreed upon by those persons or, in default of agreement, by the local committee having jurisdiction in relation to the person who rst lodges an appeal; (c) a person lodging an appeal shall serve a copy of all the appeal documents on all other affected persons who shall be entitled to appear on the appeal as if they were parties thereto; (d) if the local committee before which an appeal is heard considers that any other person should be joined, it may order that a copy of all the appeal documents shall be served on that other person who shall be entitled to appear on the appeal as if he were a party thereto.

(4) Where any appeal under subsection (1) against a decision or act of the Commissioner is determined, then, subject to any right of appeal therefrom to the Court, that act or decision shall not subsequently be the ground of any other appeal, whether by the same or any other person, and the determination of that appeal shall be treated as nally determining the rights of all parties arising out of or consequent upon the Act or decision of the Commissioner so appealed against whether or not that other person was heard at the appeal.

90.

(1) Where for any year of income, a person who, having a Relief in respect of return of income, has been assessed to tax under section 73(2)(a), or error or mistake.

having submitted a self-assessment return of income under section 52B and alleges that the assessment was excessive by reason of some error or mistake of fact in the return, then he may, not later than seven years after the expiry of that year of income, make an application to the Commissioner for relief.

130 [Rev.

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470 Income Tax (2) On receiving an application under subsection (1) the Commissioner shall inquire into the matter and, after taking into account all relevant circumstances, shall give such relief by way of repayment as is reasonable and just; but no relief shall be given in respect of an error or mistake as to the basis on which the liability of an applicant should have been computed where the return of income was in fact made on the basis or in accordance with the practice generally prevailing at the time the return of income was made.

Rules for appeals to 91.

The Chief Justice may make rules governing appeals to the the Court.

Court under this Part.

Appeals to Court of 91A.

A party to an appeal lodged under section 86(2) who is Appeal.

dissatised with the decision of the Court thereon may, upon giving notice of appeal to the other party or parties to that appeal within fteen days after the date on which a notice of that decision has been served upon him, appeal to the Court of Appeal from the order made by the Court, on any of the following grounds, namely (a) the decision being contrary to law or to some usage having the force of law; (b) the decision having failed to determine some material issue of law or usage having the force of law; (c) a substantial error or defect in the procedure provided by this Act and rules made thereunder which may possibly have produced error or defect in the decision of the case upon the merits.

PART xICOllECTION, RECOVERy AND REPAyMENT OF TAx Time within which 92.

(1) Save as otherwise provided by this Act and any rules made payment to be made.

thereunder, tax charged in any assessment shall be due and payable in 2 of 1975, s.

5, accordance with this section.

7 of 1976, s.

2, 13 of 1979, s.

5, (2) The tax charged in an assessment other than a provisional 9 of 1989, s.

21, assessment shall be due and payable 7 of 2002, s.47.

(a) in the case of an individual (i) where the date of service of an assessment made under section 73(2)(a) is before 31st August in the year following the year of income in respect of which the tax is charged, on or before 30th September in that follow- Rev.

2012] Income Tax CAP.

470 131 ing year; and (ii) in all other cases within thirty days from the date of the service of the notice of such assessment; (b) in the case of a person, other than an individual (i) where the date of service of an assessment made under section 73(2)(a) is before 31st May in the year following the year of income in respect of which the tax is charged, on or before 30th June, in that following year; and (ii) in all other cases, within thirty days from the date of service of the notice of the assessment.

(2A) Where an instalment assessment is made for any year of income on any person under section 74A, the tax charged thereunder shall be due and payable on or before the twentieth day of the months in the current year of income as specied in the Twelfth Schedule: Provided that where the instalment assessment is made under section 74A(3), the tax shall be due and payable within thirty days of service of the notice of that assessment.

(2B) Where the Commissioner makes an instalment assessment under section 74A(3), the amount payable in that assessment for the purpose of section 94 shall be deemed to be tax remaining unpaid after the due date on which interest under the section may be charged.

(3) Where a provisional assessment is made for any year of income on a person under section 74, the tax charged thereunder shall be due and payable within three months of the end of the accounting period the income of which forms the basis of the provisional assessment: Provided that where the provisional assessment is made under section 74(3) the tax shall be due and payable within thirty days of service of the notice of that assessment.

(4) (Deleted by 9 of1989 S.

21).

(4A) Where a person has notied the Commissioner in writing as required by section 53(3), the provisional tax shall be due and payable within thirty days after the date of service by the Commissioner of the provisional assessment.

(5) In the case of a company which is being wound up, the due dates for payment of tax on any income charged for the year of income 132 [Rev.

2012 CAP.

470 Income Tax in which the winding-up commences and for the preceding year of income shall be deemed for the purpose of priority of debts but for that purpose only, to be the date next before the date of the winding-up order or the resolution, special resolution or extraordinary resolution, as the case may be, passed for the winding-up of the company, and whether or not assessments have been made before that date.

(6) Where a notice of objection has been given then, notwithstanding that the assessment has not been nally determined, if the tax is due and payable under subsection (2), so much of the tax as is not in dispute shall be due and payable in accordance with that subsection and the balance in accordance with section 93; but the Commissioner may permit a lesser or no amount to be paid in accordance with this subsection, in which case the balance of the amount, as the case may be, otherwise so due and payable shall be due and payable at the same time as the amount referred to in section 93 is to be paid.

(7) The Commissioner may extend the period within which tax is to be paid and may specify another due date for payment thereof.

(8) For the purposes of subsection (6) the tax which is not in dispute shall be deemed to be the amount which would be charged if the assessment were amended in accordance with the notice of objection and, where notice of appeal has been given, as if it were amended in accordance with the memorandum of appeal.

Due date for payment 92A.

(1) Where any person is required to furnish a return under of tax under self- section 52B, the tax chargeable thereunder shall be due and payable assessment.

on the last day of the fourth month following the end of the year of 8 of 1997, s.

46, income or accounting period.

5 of 1998, s.

38, 4 of 2004, s.

56.

(2) Where the Commissioner makes an additional assessment under section 73(2)(b), the tax charged thereunder shall be deemed to have been due and payable on the last day of the fourth month following the end of the year of income or accounting period.

Payment of tax where 93.

(1).

The balance of tax referred to in section 92(6) shall be paid notice of objection, etc.

(a) in a case to which section 85(2) applies, before the expiry 13 of 1978, Sch., of thirty days after the date of service of the notice under 10 of 1986, s.

32.

that subsection; (b) in a case to which section 85(3) applies, but no appeal has been brought under section 86, before the expiry of thirty days after the date of service of the notice under that subsection; Rev.

2012] Income Tax CAP.

470 133 (c) in a case where the assessment has been determined on appeal by a decision of a local committee or the tribunal, notwithstanding that an appeal has been or may be lodged against that decision (i) where the decision of the local committee or the tribunal has not resulted in any amendment to the assessment before the expiry of thirty days after the date of service of the notice under section 87(2)(e); or (ii) where the decision of the local committee or the tribunal has resulted in an amendment to the assessment before the expiry of thirty days after the date of service of the notice under section 87(2)(f).

(2) Where the decision of the local committee or the tribunal is appealed against and the assessment is nally determined on such subsequent appeal, if the amount of tax under that assessment is (a) more than the amount of tax paid in accordance with section 92(6) and subsection (1)(c) (together with interest charged under section 94) then the amount underpaid shall be payable before the expiry of thirty days after the date of service of the notice under section 87(2)(f); or (b) less than the amount of the tax paid in accordance with section 92(6) and subsection (1)(c) (together with interest charged under section 94) then the amount overpaid shall be refunded under section 105 together with interest thereon at such rate as may have been ordered on appeal.

94.

(1) In addition to the penalty payable under section 72D, a Penalty and interest late payment interest of two per cent per month or part thereof shall on unpaid tax.

be charged on the amount, of tax remaining unpaid for more than one 8 of 1997, s.

month after the due date until the full amount is recovered: 9 of 2000, s.51, 8 of 2008, s.

37 Provided that 10 of 2010, s.

28.

(a) the interest chargeable under this subsection shall not exceed one hundred per centum of the tax owing; and (b) the penalty referred to in this subsection or imposed under any other section of this Act shall not attract any interest.

(2) The penalty under section 72, 72B, 72C and 72D and late payment interest charged under this section shall, for the purpose of 134 [Rev.

2012 CAP.

470 Income Tax the provisions of this Act relating to the collection and recovery of tax, be deemed to be tax.

(3) For purpose of computing interest on unpaid tax, with respect to tax due and owing for the year of income commencing on or after the 1st January, 1992, the due date for the tax charged in an assessment shall be the last date as provided in sections 52B, 92 and 92A irrespective of the fact that such as assessment may be stood over on account of an objection or an appeal.

(4) The Commissioner may upon application by a person from whom any interest is due under this section remit the whole or part of any penalty or late payment interest or both such penalty or and interest charged under section 72D up to a maximum of one million, ve hundred thousand shillings each per person per annum: Provided that (a) the Commissioner may remit any amount of penalty or late payment interest in excess of one million, ve hundred thousand shillings with the prior written approval of the Minister; and (b) the Commissioner shall make a quarterly report to the Minister of all penalties and late payment interest remitted during that quarter.

(5) Upon receipt of an application under subsection (4), the Commissioner shall, where the applicant has paid the principal tax due in full, suspend the charging of the interest pending the determination of the application.

(6) Where remission under subsection (4) is not granted, or is granted in respect of only part of the penalty or late payment interest, the balance shall become due and payable within ninety days of the determination of the application.

(7) Where the balance of the penalty or interest payable under subsection (6) remains unpaid after the expiry of the specied period, a surcharge at the rate of two percent per month or part thereof, of the unpaid amount shall forthwith be due and payable.

Interest on 95.

(1) If, for a year of income, the difference between the amount underestimated tax.

of tax assessed on the total income of a person and the amount of the 10 of 1965, s.

35, estimate of the tax chargeable contained in a provisional return of income 1 of 1990, s.

57, made by that person in respect of that year is greater than ten per cent 8 of 1997, s.

48, of that estimated tax, interest at the rate of two per cent per month shall 9 of 2000, s.

52.

Rev.

2012] Income Tax CAP.

470 135 be payable on the whole of the difference between the tax so assessed and the tax so estimated.

(2) Interest under subsection (1) shall be calculated from the due date as specied in section 92(2).

(3) Where the Commissioner is satised that a difference referred to in subsection (1) was due to some reasonable cause, he may remit the whole or part of the interest payable under this section, and where for a year of income the difference arises wholly or partly from an estimate of tax to be charged made before a change in any allowance, relief or rate of tax, the Commissioner shall remit the interest thereon to the extent to which it is attributable to that change: Provided that (a) the Commissioner may remit up to a maximum of ve hundred thousand shillings per person per annum of the interest; (b) the Commissioner may remit any amount of interest in excess of ve hundred thousand shillings with the prior written approval of the Minister; and (c) the Commissioner shall make a quarterly report to the Minister of all interest remitted during that quarter.

95A.

(Repealed by 4 of 1993, s.

56) 96.

(1) In this section Appointment and duties of agent.

agent means a person appointed as such under subsection (2); 6 of 2005, s.31.

appointment notice means a notice issued by the Commissioner under that subsection appointing an agent; moneys include salary, wages and pension payments and any other remuneration whatever; principal means the person in respect of whom an agent is appointed.

(2) The Commissioner may by written notice addressed to any person (a) appoint him to be the agent of another person for the purposes of the collection and recovery of tax due from that other person; and 136 [Rev.

2012 CAP.

470 Income Tax (b) specify the amount of tax to be collected and recovered.

(3) An agent shall pay the tax specied in his appointment notice out of any moneys which may, at any time during the twelve months following the date of the notice, be held by him for, or due from him to, his principal.

(4) Where an agent claims to be, or to have become, unable to comply with subsection (3) by reason of the lack of moneys held by, or due from him, he shall, within seven working days notify the Commissioner accordingly in writing setting out fully the reasons for his inability so to comply, and the Commissioner may (a) accept the notication and cancel or amend the appointment notice accordingly; or (b) if he is not satised with those reasons, reject the notication in writing.

(5) Unless and until a notication is by given an agent under subsection (4) (a) sufcient moneys for the payment of tax specied in his appointment notice shall be presumed to be held by him for, or due from him to, his principal; and (b) in any proceedings for the collection or recovery of that tax shall be stopped from asserting the lack of those moneys.

(6) For the purposes of this section, the Commissioner may, by notice in writing, at any time require any person to furnish him within a reasonable time, not being less than thirty days from the date of service of the notice, with a return showing any moneys which may be held by that person for, or due by him to, another person from whom tax is due.

(7) Where an agent fails to pay an amount of tax specied in his appointment notice within thirty days (a) of the date of service of the notice on him; or (b) of the date on which any moneys come into his hands for, or become due by him to, his principal, whichever is later, and (i) he has not given a notication under subsection (4); or Rev.

2012] Income Tax CAP.

470 137 (ii) he has given a notication which has been rejected by the Commissioner, the provisions of this Act relating to the collection and recovery of tax shall apply to the collection and recovery of that amount as if it were tax due and payable by the agent, the due date for the payment of which was the date upon which that amount should have been paid to the Commissioner under this subsection.

(8) An agent who has made a payment of tax under this section shall for all purposes be deemed to have acted therein with the authority of his principal and of all other persons concerned, and shall be indemnied in respect of that payment against all proceedings, civil or criminal, and all process, judicial or extrajudicial, notwithstanding any provisions to the contrary in any written law, contract or agreement.

(9) A person who, in giving a notication under subsection (4), wilfully makes any false or misleading statement, or wilfully conceals any material fact, shall be guilty of an offence.

(10) For the purposes of this section, cases where moneys are held by an agent for, or due by him to, his principal, shall include case where the agent (a) owes or is about to pay money to the principal; or (b) holds money for or on account of the principal; or (c) holds money on account of some other person for payment to the principal; or (d) has authority from some other person to pay money to the principal.

96A.

(1) Where the Commissioner has reasonable cause to believe Preservation of that a person funds.

9 of 2007, s.

26.

(a) has made income which has not been charged to tax; and (b) is likely to frustrate the recovery of tax if information on the Commissioners suspicion under this subsection is disclosed to him, the Commissioner may make an ex-parte application to court and the court may issue an order prohibiting the transfer, withdrawal or disposal of, or any other dealings involving the with funds to any person or institution holding such funds for the person having such income.

138 [Rev.

2012 CAP.

470 Income Tax (2) An order under this section shall have effect for 30 days and may be extended by the court on application by the Commissioner (3) A person whose funds are the subject of a preservation order may, within 15 days of being served with the order, apply to the court to discharge, or vary the order and the court may, after hearing the parties, discharge or vary the order or dismiss the application.

(4) Where the Court has issued an order under this section, the Commissioner shall, within a period of thirty days from the date of the order, determine the tax due and payable, issue a notice of assessment and commence recovery of such tax in accordance with the provisions of this Act.

(5) Upon issuance of a notice of assessment under subsection (4), the order shall automatically expire unless extended by the Court upon application by the Commissioner.

(6) A person served with an order under this section who, in any way, interferes with the funds to which it relates commits an offence.

(7) A person or institution which has preserved funds or any account pursuant to a Court order under this section, shall for all purposes be deemed to have acted within the authority thereof and such person and all other persons concerned shall be indemnied in respect of the actions taken in connection therewith against all proceedings, civil or criminal and all process, judicial or extrajudicial, notwithstanding any provisions to the contrary or in any written law, contract or agreement.

Deceased persons.

97.Where a person dies, then to the extent to which (a) tax charged in an assessment made upon him has not been paid; or (b) his executors are charged to tax in an assessment made under section 48, the amount of tax unpaid or charged, as the case may be, in the assessment as nally determined shall be a debt due and payable out of his estate.

Collection of tax 98.(1) Notwithstanding anything to the contrary in this Act, where from persons leaving the Commissioner has assessed a person under section 75 he may, by and having left notice in writing served on the person assessed, require that payment of Kenya.

the whole of the tax assessed or such part thereof as remains unpaid be made within such time as may be specied in the notice or that security to his satisfaction be given for the payment.

Rev.

2012] Income Tax CAP.

470 139 (2) Notwithstanding anything to the contrary in this Act, where the Commissioner has reason to believe that a person who has been assessed to tax otherwise than under section 75 (a) is about to leave Kenya without having paid the tax; or (b) has left Kenya without having paid the tax and his absence is unlikely to be only temporary, he may, whether or not the due date for the payment of that tax has arrived, by notice in writing served on the person assessed, require (i) that payment of the whole, or such part as remains unpaid, of the tax assessed be made within the time specied in the notice; or (ii) that security to his satisfaction be given for the payment.

(3) Where a notice has been served on a person under this section the amount of the tax assessed and required to be paid, shall, notwithstanding that a notice of objection to, or appeal against, the assessment has been given or is pending, be deemed to be due and payable on the date specied in the notice, and in default of compliance with that notice the Commissioner shall, in addition to any action taken under subsection (4) of this section or under section 96, be entitled forthwith to recover the tax by suit or distress under this Act; but if subsequent to the commencement of a suit under this section compliance is made with the notice, that suit shall be discontinued and no order for costs thereon shall be made.

(4) Where a person has failed to comply with a notice served personally on him under this section, the Commissioner may apply to a magistrate for the arrest of that person, and if the magistrate is satised by afdavit or otherwise that (a) an amount of tax is due and payable by that person; and (b) he has failed to comply with the notice; and (c) there is reason to believe that he is about to leave Kenya, he may issue a warrant to arrest that person and bring him before the court to show cause why he should not pay the tax or give security therefor to the satisfaction of the Commissioner; but that person shall not be arrested if he pays to the ofcer entrusted with the warrant the amount of the tax due.

(5) Where a person brought before a court under subsection 140 [Rev.

2012 CAP.

470 Income Tax (4) fails to show cause as thereby required, the magistrate may order him either forthwith to pay the amount of tax due or forthwith to give security therefor to the satisfaction of the Commissioner and, in default of compliance, to be committed to prison until the tax due is paid or security given, but (a) no person shall be so detained in prison for a longer period than six months; (b) the detention in prison of a person shall not release him from liability to pay the tax.

(6) In proceedings under subsection (4) and (5) the production of a certicate signed by the Commissioner giving the name and address of the person and the amount of tax due and payable by him shall be sufcient evidence that the amount of tax is due and payable by that person.

(7) The compliance by a person with the notice served on him under subsection (1) or (2) shall not prejudice his right to give notice of objection to ,or to appeal against the assessment and if, after the assessment has been nally determined, the amount of tax due and payable by that person is (a) less than the amount paid, then the amount overpaid shall be refunded under section 105 together with interest thereon at such a rate as the Court may order; (b) more than the amount paid, then the amount underpaid shall be payable under section 93 as if it were a balance of tax charged referred to in section 92(6).

99.

(Repealed by 9 of 2000, s.

53).

Collection of tax 100.

(1) Where security has been given under section 98(1) or (2) from guarantor.

and that security consists of a form of guarantee under which, in default of payment of tax in terms of the security, a person (in this section referred to as guarantor) is obliged to pay that tax, the Commissioner may, in default of payment of the tax, by notice in writing served on the guarantor require him to pay within ninety days of the notice the amount of tax (not exceeding the amount guaranteed by him) as shall be specied in the notice.

(2) The provisions of this Act relating to the collection and recovery of tax shall apply to the collection and recovery of the amount of tax specied in a notice issued under this section as if that amount were tax due and payable by the guarantor and as if the due date for Rev.

2012] Income Tax CAP.

470 141 the payment of that amount was the date upon which the amount was due for payment under the notice.

101.

(1) Where Collection of tax (a) payment of tax has not been made on or before the due by suit.

date; or (b) a notice which has been served on a person under section 98 has not been complied with, the tax due by that person may be sued for and recovered as a debt due to the Government in a court of competent jurisdiction by the Commissioner in his ofcial name.

(2) In a suit under this section the production of a certicate signed by the Commissioner giving the name and address of the person concerned and the amount of tax due and payable by him shall be sufcient evidence that the amount of tax is due and payable by that person.

102.

(1)In a case in which tax is recoverable in the manner Collection of tax by provided by section 101 the Commissioner may, instead of suing for distraint.

the tax, recover it by distress, and for that purpose may by order under 7 of 1976, s.

2.

his hand authorize an ofcer to execute distress upon the goods and chattels of the person from whom the tax is recoverable and that ofcer may, at the cost of the person from whom the tax is recoverable, employ such servants or agents as he may think necessary to assist him in the execution of the distress: Provided that (i) where the full amount of the tax due and payable is not recovered by distress, the Commissioner may forthwith recover the deciency in the manner provided by sec- tion 101; (ii) where the full amount of tax due and payable has been paid after the issue of an order under this section and before the execution of distress, any costs and expenses incurred by the Commissioner prior to the payment of the tax shall be deemed to be a debt due and payable to the Government by the person in respect of whom the order was issued and may be recovered by the Commissioner as tax under this Act.

(1A) For the purposes of executing distress the person authorized 142 [Rev.

2012 CAP.

470 Income Tax by the Commissioner under the order may, in addition to employing such servants or agents as he may consider necessary, require a police ofcer to be present while distress is being levied and a police ofcer so required shall comply with that requirement.

(2) A distress levied under this section shall be kept for ten days, either at the premises at which distress was levied or at any other place which the authorized ofcer may consider appropriate, at the cost of the person from whom the tax is recoverable.

(3) If the person from whom tax is recoverable by distress does not pay the tax together with the costs of the distress within the period of ten days referred to in subsection (2), the goods and chattels distrained upon shall be sold by public auction for payment of the tax due and payable and costs, and the proceeds of the sale shall be applied rst towards the costs of taking, keeping and selling the goods and chattels distrained upon and then towards the tax due and payable and any remainder of those proceeds shall be restored to the owner of the property distrained.

Security on property 103.

(1)Where a person being the owner of land or of buildings for unpaid tax.

on land situated in Kenya, fails to make payment of tax due by him on or before the due date or fails to comply with a notice served on him under section 98, the Commissioner may by notice in writing notify that person of his intention to apply to the Registrar of Lands for the land or buildings to be the subject of security for tax of an amount specied in the notice.

(2) If a person on whom a notice has been served under this section fails to make payment of the whole of the amount of the tax specied in the notice within thirty days of the date of the service of the notice, the Commissioner may by notice in writing direct the Registrar of Lands that the land or building, to the extent of the interest of the person therein, be the subject of security for tax of a specied amount, and the Registrar shall, without fee, register the direction as if it were an instrument of mortgage over or charge on, as the case may be, the land or buildings and thereupon that registration shall, subject to any prior mortgage or charge, operate while it subsists in all respects as a legal mortgage over or charge on the land or building to secure the amount of the tax.

(3) The Commissioner shall, upon the payment of the whole of the amount of the tax secured under subsection (2) by notice in writing to the Registrar of Lands, cancel the direction made under that subsection and the Registrar shall, without fee, record the cancellation and thereupon the direction shall cease to subsist.

Collection of tax 104.

(1) In addition to any other powers of collection of tax Rev.

2012] Income Tax CAP.

470 143 provided in this Act, the Commissioner may, in a case where tax from shipowner, etc.

recoverable in the manner provided by section 101 has been charged on the income of a person who carries on the business of shipowner, charterer or air transport operator, issue to the proper ofcer of Customs by whom clearance may be granted a certicate containing the name of that person and the amount of the tax due and payable and on receipt of that certicate the proper ofcer of Customs shall refuse clearance from any port or airport in Kenya to any ship or aircraft owned by that person until the tax has been paid.

(2) No civil or criminal proceedings shall be instituted or maintained against the proper ofcer of Customs or any other authority in respect of a refusal of clearance under this section, nor shall the fact that a ship or aircraft is detained under this section affect the liability of the owner, charterer or agent to pay harbour or airport dues and charges for the period of detention.

105.

(1) If it is proved to the satisfaction of the Commissioner Refund of tax that, in respect of a year of income, tax has been paid by or on behalf overpaid.

of a person, whether directly or by deduction or otherwise, which is in excess of the amount payable by that person as nally determined in respect of that year of income, the Commissioner shall refund the amount of the excess, together with any interest which may be payable thereon under this Act, to the person entitled to the refund.

(2) When tax is due and payable by a person in respect of an assessment, any amount refundable to that person under this section shall be applied towards the satisfaction of the tax so due and payable to the extent of that tax and the amount so applied shall not be refunded (3) A claim for repayment under this section shall be made within seven years after the expiry of the year of income to which the claim relates; but in a case to which section 79(1)(c) applies, a claim for repayment may be made within the period in which an assessment may be made.

106.

(1) Where under a will or settlement, other than a settlement Repayment of tax to which section 25 or 26 applies, income (in this section referred to as in respect of income accumulated under the trust income) arising from a fund is accumulated for the benet of trusts.

a person contingently on his attaining some specied age or marrying then, if that person proves to the satisfaction of the Commissioner that the contingency has happened, he shall, on making to him a claim for that purpose, be entitled to have repaid to him a sum equal to the amount by which the total amount of tax borne by the trust income during the period of accumulation exceeds the total amount of additional tax which would have been borne by him during that period if the trust 144 [Rev.

2012 CAP.

470 Income Tax income and the income from any other fund subject to the same trust for accumulation had been included in his total income; but in calculating that sum a deduction shall be made in respect of tax borne by the trust fund and already repaid to him.

(2) A claim for repayment under this section shall be made in writing to the Commissioner within six years after the expiry of the year of income in which the contingency happened.

PART xIIOFFENCES AND PENAlTIES General penalty.

107.

A person guilty of an offence under this Act for which no other penalty is specically provided shall be liable to a ne not exceeding one hundred thousand shillings or to imprisonment for a term not exceeding six months or to both.

Additional penalties.

108.

(1) Any person guilty of an offence under subsection (1) of section 72A shall, in addition to the penalties specied in that subsection, be liable to a ne not exceeding two hundred thousand shillings or imprisonment for a term not exceeding two years or to both.

(2) If the additional tax chargeable under section 72 or 72A is due to wilful or gross neglect, or fraud on the part of an authorized tax agent, the authorized tax agent shall be guilty of an offence and liable to a ne not exceeding two hundred and fty thousand shillings with respect to each return, statement, or other document as shall be subject to additional tax.

(3) Nothing in this section shall affect the liability to tax of the person subject to additional tax under section 72 or 72A.

Failure to comply 109.

(1) A person shall be guilty of an offence if he, without with notice, etc.

reasonable excuse 7 of 1976, s.

2.

(a) fails to furnish a return or give a certicate as required by section 35(5); or (b) fails to furnish a full and true return in accordance with the requirements of a notice served on him under this Act or fails to give notice to the Commissioner as required by section 52(3); or (c) fails to furnish within the required time to the Commissioner or to any other person any document which under this Act, or under a notice served on him under this Act, he is required so to furnish; or Rev.

2012] Income Tax CAP.

470 145 (d) fails to keep records, books or accounts in accordance with the requirements of a notice served on him under section 55(1), or fails to keep those records, books or accounts in the language specied in the notice; or (e) fails to preserve a record, document or book of account in contravention of Section 55 (2); or (f) fails to produce a document for the examination of the Commissioner in accordance with the requirements of a notice served on him under this Act; or (g) destroys, damages or defaces any accounts or other documents in contravention of a notice served on him under section 56(1); or (h) fails to attend at a time and place in accordance with the requirements of a notice served on him under this Act; or (i) fails to answer any question lawfully put to him, or to supply any information lawfully required from him, under this Act; or (j) fails to deduct and account, or fails to account for tax, as provided by section 37, or fails to supply prescribed certicates as is required by that section; or (k) when requested by the Commissioner, fails to furnish the identifying number required under section 132, or fails to include in any return, in a statement or in other documents the identifying number when required to do so.

(2) No prosecution for an offence under this section shall be instituted at any time subsequent to two years after the date of the commission of the offence or, in the case of the contravention of paragraph (d), (e) or (g) of subsection (1) after the date on which the fact of the commission of that offence came to the knowledge of the Commissioner.

110.

(1) A person shall be guilty of an offence if he, without Incorrect returns, etc.

reasonable cause (a) makes an incorrect return of income by omitting therefrom or understating therein any income which should have been stated therein; or (b) makes an incorrect statement in a return made in compliance with a notice served on him under this Act; or 146 [Rev.

2012 CAP.

470 Income Tax (c) gives incorrect information in relation to any matter or thing, including incorrect information in relation to a claim for a personal relief, affecting the liability to tax of another person.

(2) No prosecution for an offence under this section shall be brought at any time subsequent to six years after the date of the commission of the offence.

Fraudulent returns, 111.

(1) A person who makes a fraudulent claim for the repayment etc.

of tax or who, with intent to evade tax (a) makes a false return of income by omitting therefrom or understating therein any income which should have been stated therein; or (b) makes a false statement in return made in compliance with a notice served on him under this Act; or (c) gives false information in relation to any matter or thing, including false information in relation to a claim for a personal relief affecting his liability to tax; or (d) prepares or maintains, or authorizes the preparation or maintenance of, false books of account or other record, or falsies, or authorizes the falsication of, books of account or records; or (e) makes use of fraud, or authorizes the use of fraud, shall be guilty of an offence and liable to a ne not exceeding ten thousand shillings or double the amount of tax for which he is liable under this Act for the year of income in respect of which the offence was committed, whichever is the greater, or to imprisonment for a term not exceeding two years or to both.

tax(2) A person who, with intent to assist another person to evade (a) omits from a return of income made by him on behalf of that other person or understates therein any income which should have been stated therein; or (b) makes a false statement in a return made by him on behalf of that other person in compliance with a notice served on that other person under this Act; or (c) gives false information in relation to any matter or thing, Rev.

2012] Income Tax CAP.

470 147 including false information in relation to a claim by that other person to a personal relief affecting the liability to tax of that other person; or (d) prepares false books of account or other records relating to that other person or falsies any such books of account or other records; or (e) does any other fraudulent act, shall be guilty of an offence and liable to a ne not exceeding ten thousand shillings or to imprisonment for a term not exceeding two years or to both.

(3) Whenever in proceedings under this section it is proved that a false statement or entry is made by a person in a return of income or other return furnished under this Act by that person or on behalf of any other person or in any books of account or other records prepared or maintained by that person or on behalf of any other person, the person making the false statement or entry shall be presumed, until the contrary is proved, to have made the false statement or entry with intent to evade tax or to assist or enable that other person to evade tax.

112.

A person who in any way obstructs or attempts to obstruct an Obstruction of ofcer in the performance of his duties or in the exercise of his powers under this Act shall be guilty of an offence.

ofcer.

113.

(1) Notwithstanding anything to the contrary in any other Evidence in cases of written law, statements made or documents produced by or on behalf of fraud, etc.

a person shall not be inadmissible in proceedings to which this section applies by reason only that it has been drawn to his attention that (a) in relation to tax, the Commissioner may accept pecuniary settlement instead of sanctioning the institution of a prosecution; and (b) though no undertaking can be given as to whether or not the Commissioner will accept pecuniary settlement in the case of a particular person, it is the practice of the Commissioner to be inuenced by the fact that a person has made a full confession of any fraud or default to which he has been a party and has given full facilities for investigation, and that he was or may have been induced thereby to make the statement or produce the documents.

(2) This section shall apply to 148 [Rev.

2012 CAP.

470 Income Tax (a) criminal proceedings against the person in question for any form of fraud, neglect or default in connection with, or in relation to, tax; or (b) proceedings for the recovery of a sum due under this Act.

Power of 114.

(1) Where a person has committed an offence under this Act Commissioner to other than an offence under section 126, the Commissioner may with compound offences.

the approval of the Minister, at any time prior to the commencement of the hearing by any court of a charge in relation thereto, compound the offence and order the person to pay a sum of money, not exceeding the amount of the ne to which that person would have been liable if he had been convicted of the offence, as he may think t; but the Commissioner shall not exercise his powers under this section unless the person concerned admits in writing that he has committed the offence and requests the Commissioner so to deal with the offence.

(2) Where the Commissioner compounds an offence under this section, then the order referred to in subsection (1) (a) shall be put into writing and there shall be attached to it the written admission and request referred to in subsection (1) and a copy of the order shall be given, if he so requests, to the person who committed the offence; and (b) shall specify the offence committed, the sum of money ordered to be paid, and the date or dates on which payment is to be made; and (c) shall be nal and shall not be subject to appeal; and (d) may be enforced in the same manner as a decree of a court for the payment of the amount stated in the order.

(3) When the Commissioner compounds an offence under this section, the person concerned shall not be liable to prosecution in respect of that offence; and if a prosecution is brought it shall be a good defence for that person to prove that the offence has been compounded under this section.

Place of trial.

115.

A person charged with an offence under this Act may be proceeded against, tried and punished, in any place in Kenya in which he may be in custody for that offence as if the offence had been committed in that place, and the offence shall for all purposes incidental Rev.

2012] Income Tax CAP.

470 149 to, or consequential upon, the prosecution, trial or punishment thereof, be deemed to have been committed in that place; but nothing herein contained shall preclude the prosecution, trial and punishment of that person in any place in which, but for this section, that person might have been prosecuted, tried and punished.

116.

Where an offence under this Act has been committed by Offences by a corporate body of persons, every person who at the time of the corporate bodies.

commission of the offence was a director, general manager, secretary, or other similar ofcer, of the body corporate, or was acting or purporting to act in that capacity, shall also be guilty of the offence unless he proves that the offence was committed without his consent or knowledge and that he exercised all the diligence to prevent the commission of the offence that he ought to have exercised having regard to the nature of his functions in that capacity and in all the circumstances.

117.

Notwithstanding anything contained in any written law, an Ofcer may appear ofcer duly authorized in writing in that behalf by the Commissioner on prosecution.

may appear in any court on behalf of the Commissioner in proceedings Cap.

75 to which the Commissioner is a party and, subject to the directions of the Attorney General, that ofcer may conduct a prosecution for an offence under this Act and for that purpose shall have all the powers of a public prosecutor appointed under the Criminal Procedure Code.

118.

The amount of tax or interest due and payable under this Act Tax charged shall not be abated by reason only of the conviction or punishment of to be payable the person liable for the payment thereof for an offence under this Act notwithstanding or of the compounding of the offence under section 114.

prosecution.

119.

(1) If an ofcer of the rank of Principal Revenue Ofcer or Power to search and above authorized by the Commissioner to inquire into the affairs under seize.

this Act of a person satises a magistrate that the person has committed, 15 of 2003, s.

38.

or is reasonably suspected of committing, an offence under this Act, the magistrate may by warrant authorize the ofcer to exercise all or any of the following powers (a) to enter any premises between sunrise and sunset to search for money, documents or other articles relevant to the inquiry; (b) to open, or remove from the premises and open, any container, box or package in which it is suspected that money, documents or relevant articles are contained; (c) to seize money, documents or relevant articles which may be necessary for the inquiry or for the purpose of civil or criminal proceedings and to retain them for as long as they are so required: 150 [Rev.

2012 CAP.

470 Income Tax Provided that (i) in the case of documents held by a banker the powers of the ofcer under this section shall be limited to making copies or extracts therefrom; (ii) signed receipts of the documents and the relevant articles seized shall be provided to the suspected person.

(2) In the exercise of powers authorized by warrant under subsection (1), the ofcers shall require a police ofcer to be present during the exercise thereof and a police ofcer so required shall comply with that requirement.

(3) For the purposes of subsection (1), the magistrate may require the ofcer or any other person to give such evidence on oath as may be necessary to satisfy him that the person whose affairs are the subject of inquiry has committed, or is reasonably suspected of committing, the offence concerned.

Powers to inspect 120.

(1) Notwithstanding anything to the contrary in any provision books and or rule of law, an ofcer authorized by the Commissioner to inquire documents.

into the affairs of a person for any of the purposes of this Act shall at 15 of 2003, s.

39, all time have full and free access to all lands, buildings, and places, and 10 of 2006, s.

27.

all books and documents, whether in the custody or control of a public ofcer, or of a body corporate or of any other person whatever, for the purpose of inspecting books and documents or for any other purpose he may consider relevant to the inquiry, and may make extracts from or copies of those books or documents.

(2) An ofcer acting under subsection (1) may require the owner or manager of a property or business, or a person employed in connection with that property or business, or any other person, to give him all reasonable assistance and to answer all proper questions relating to the inquiry, either orally or in writing and for that purpose may require the owner or manager, or in the case of a company an ofcer of the company, or any other person, to attend at the premises with him.

Admissibility of 121.

Notwithstanding any provision or rule of law to the evidence.

contrary (a) a document, or copy of or extract from a document, relating to the affairs of any person which has been seized or obtained by; or (b) a statement made by a person relating to his affairs is made Rev.

2012] Income Tax CAP.

470 151 to, an ofcer in accordance with the provisions of this Act shall, if relevant, be admissible in civil or criminal proceedings under this Act to which that person is a party.

PART xIIIADMINISTRATION 122.

The Commissioner shall, subject tot he direction of the Responsibility for Minister, be responsible for the control and the collection of, and administration, etc.

accounting for, tax.

4 of 2004, s.

57.

123.

(1) Notwithstanding the provisions of this Act, in any case Commissioners where he is of the opinion that he should refrain from assessing to tax, discretion to abandon or recovering tax from, a person by reason of or remit tax.

4 of 2004, s.

58.

(a) uncertainty as to any question of law or fact; or (b) consideration of hardship or equity; or (c) impossibility, or undue difculty or expense, of recovery of tax, the Commissioner may with prior approval of the Minister refrain from assessing or recovering the tax in question and thereupon liability to the tax shall be deemed to be extinguished or the tax shall be deemed to be abandoned or remitted, as the case may be, and the provisions of this Act other than this section shall no longer apply thereto.

(2) In any case which has been referred to him, and where he considers it appropriate, the Minister may in writing direct the Commissioner (a) to take such action under this section as the Minister may deem t; or (b) to obtain the direction of the Court upon the case.

(3) (Deleted by 4 of 2004, s.

58).

123A.

Notwithstanding any other provisions of this Act, the Amnesty for Commissioner shall refrain from assessing or recovering penalties and penalties and interest.

interest in respect of any year of income ending on or before the 31st 4 of 2004, s.

59.

December, 2003 where (a) the tax is paid; and 152 [Rev.

2012 CAP.

470 Income Tax (b) the returns, or amended returns, containing a full disclosure of the previously undisclosed income, are submitted, on or before the 31st December, 2004; Provided that this section shall not apply in respect of any tax if the person who should have paid the tax (i) has been assessed in respect of the tax or any matter relating to the tax; or (ii) is under audit or investigation in respect of the undis- closed income or any matter relating to the undisclosed income.

Commissioner 123B.

Notwithstanding any other provisions of this Act, the to refrain from Commissioner shall refrain from assessing or recovering taxes, penalties assessing tax in some or interest in respect of any year of income ending on or before the 31st cases.

December, 2010, where 10 of 2010, s.

29.

(a) that income has been declared for the year 2010 by a citizen of Kenya living and earning taxable income outside Kenya; (b) the returns and accounts for the year 2010 are submitted on or before the 30th June, 2011: Provided that this section shall not apply in respect of any tax where the person who should have paid the tax (i) has been assessed in respect of the tax or any matter relating to the tax; or (ii) is under audit or investigation in respect of the undis- closed income or any matter relating to the undisclosed income.

Exercise of powers, 124.

The Commissioner may, subject to such limitations as he may etc.

6 of 2005, s.

32, think t, authorize an ofcer to exercise any of the powers conferred 10 of 2006, s.

28.

by this Act upon the Commissioner, other than the powers conferred by sections 114 and 123.

125.

(1) An ofcer and any other person employed in carrying Ofcial secrecy.

out the provisions of this Act shall regard and deal with all documents 7 of 1976, s.

2, 10 of 1983, s.

2.

and information relating to the income of a person and all condential 6 of 2005, s.

33.

instructions in respect of the administration of the Income Tax Department which may come into his possession or to his knowledge in the course of his duties as secret.

Rev.

2012] Income Tax CAP.

470 153 (1A) An ofcer appointed under section 13 of the Kenya Revenue Authority Act for purposes of this Act shall, on appointment, make and Cap.

469.

subscribe before a magistrate or commissioner for oaths, a declaration in the prescribed form.

(2) No ofcer and no other person employed in carrying out the provisions of this Act, shall be required to produce in court a document, or to communicate to a court information, which has come into his possession or to his knowledge in the performance of his duties under this Act except as may be necessary for the purpose of carrying into effect the provisions of this Act or in order to bring or assist in the course of a prosecution for an offence committed in relation to tax.

(3) Nothing in this section shall prevent (a) an ofcer or person from revealing a document or information relating to the income of a person or condential instructions in respect of the administration of the Income Tax Department to another ofcer or person so employed in the course of his duties, or to a person authorized in that behalf by the Minister in relation to a person resident in Kenya, or to a court or person for the purposes of this Act; (b) an ofcer from revealing a document or information solely for revenue or statistical purposes to a person in the service of the Government in a revenue or statistical department where that document or information is needed for the purposes of the ofcial duties of that last mentioned person and where last mentioned person has made a subscribed a declaration of secrecy in relation to information coming to his knowledge in the course of his ofcial duties; (c) an ofcer from revealing a document or information to the Controller and Auditor-General, or to an authorized member of his Department, where that document or information is needed for the performance of his ofcial duties.

(d) an ofcer from providing to the Board established under the Higher Education Loans Board Act, the name and address Cap.

213A of any person granted an education loan or his employer, where such information is required for the performance of the Boards ofcial duties in recovery of the education loans.

(4) Where under a law in force in any country, or under a special arrangement, provision is made for the allowance of relief from income tax in respect of the payment of tax in Kenya, the obligation as to secrecy 154 [Rev.

2012 CAP.

470 Income Tax imposed by this section shall not prevent the disclosure to the authorized ofcers of the government of the place with which that arrangement was made of such facts as may be necessary for the obtaining of that relief or for the prevention of fraud or for the administration of statutory provisions against legal avoidance in relation to those taxes.

Offences by or in 126.

(1) An ofcer or other person employed in carrying out the provisions of this Act who relation to ofcers, etc.

(a) directly or indirectly asks for, or takes, in connection with his duties any payment or reward whatever, whether pecuniary or otherwise, or a promise or security for such a payment or reward, not being a payment or reward which is lawfully entitled to receive; or (b) enters into or acquiesces in an agreement to do, abstain from doing, permit, conceal, or connive at, an act or thing whereby the tax revenue is or may be defrauded, or which is contrary to the provisions of this Act or to the proper execution of his duty thereunder; or (c) in contravention of the provisions of section 125, and without lawful excuse, reveals to any person a document or information which has come into his possession or to his knowledge in the course of his ofcial duties, or permits any other person to have access to a document in the possession or custody of the Commissioner in his ofcial capacity, shall be guilty of an offence and liable to a ne not exceeding ten thousand shillings or to imprisonment for a term not exceeding three years or to both.

(2) A person who (a) directly or indirectly offers or gives to an ofcer, or to another person employed in carrying out the provisions of this Act, any payment or reward whatever, whether pecuniary or otherwise, or a promise or security for such a payment or reward; or (b) proposes or enters into an agreement in order to induce him to do, abstain from doing, permit, conceal, or connive at, any act or thing whereby the tax revenue is or may be defrauded, or which is contrary to the provisions of this Act, or to the proper execution of the duty of that ofcer, or person so employed, under this Act, Rev.

2012] Income Tax CAP.

470 155 shall be guilty of an offence and liable to a ne not exceeding ten thousand shillings or to imprisonment for a term not exceeding three years or to both.

PART xIVMISCEllANEOuS PROVISIONS 127.

(1) The Commissioner may specify the form of a notice, Form of notices, etc.

return of income, or other form or return, required for the purposes of this Act, and where any form has been so specied then that notice, return of income, or other form or return shall be in the form so specied.

(2) Notices given by the Commissioner under this Act may be signed by an ofcer authorized by him in that behalf, and a notice purporting to be signed by order of the Commissioner shall, unless the contrary is proved, be presumed to have been signed by an ofcer so authorized.

(3) Any form, notice or other document issued, or served or given by the Commissioner under this Act, shall be sufciently authenticated if the name or title of the Commissioner or of the ofcer authorized in that behalf, is printed, stamped, or written thereon.

127A.

(1) Subject to such conditions as the Commissioner may Application of prescribe, income tax formalities or procedures may be carried out by Information use of information technology.

Technology.

6 of 2005, s.

34 (2) For the purposes of subsection (1), the Commissioner may, 10 of 2010, s.

30.

by notice in the Gazette, specify (a) the income tax formalities and procedures which may be carried out by use of information technology; and (b) the persons authorized to carry out such formalities or procedures by use of information technology.

127B.

(1) A person who wishes to be registered as a user of a Users of the tax tax computerized system may apply to the Commissioner who may computerized system.

6 of 2005, s.

34, (a) grant the application subject to such conditions as he may 10 of 2010, s.

31.

impose; or (b) reject the application.

(2) A person shall not access, transmit to, or receive information from, a tax computerized system unless that person is a registered user of the system.

156 [Rev.

2012 CAP.

470 Income Tax Cancellation of 127C.

Where at any time the Commissioner is satised that a registration of person who is a registered that a person who is a registered user of a registered user.

tax computerized system has 6 of 2005, s.

34.

(a) failed to comply with a condition of registration imposed by the Commissioner under section 127B; (b) failed to comply with, or has acted in contravention of any conditions under the rules; or (c) been convicted of an offence under this Act relating to improper access to or interference with a tax computerized system, the Commissioner may cancel the registration of that user.

Unauthorized access 127D.

(1) A person commits an offence if he to or improper use (a) knowingly and without lawful authority, by any means gains of tax computerized system.

access to or attempts to gain access to any tax computerized 6 of 2005, s.

34 system; or (b) having lawful access to any tax computerized system, knowingly uses or discloses information obtained from such system for a purpose that is not authorized; or (c) knowing that he is not authorized to do so, receives information obtained from any tax computerized system, and uses, discloses, publishes, or otherwise disseminates such information.

(2) A person who commits an offence under subsection (1) shall be liable on conviction (a) in the case of an individual, to imprisonment for a term not exceeding two years or to a ne not exceeding four hundred thousand shillings; or (b) in the case of a body corporate, to a ne not exceeding one million shillings.

Interference with tax 127E.

A person commits an offence if he knowingly computerized system.

(a) falsies any record or information stored in any tax 6 of 2005, s.

34 computerized system; or (b) damages or impairs any tax computerized system; or Rev.

2012] Income Tax CAP.

470 157 (c) damages or impairs any duplicate tape or disc or other medium on which any information obtained from a tax computerized system is held or stored, otherwise that with the permission of the Commissioner, and shall be liable on conviction to imprisonment for a term not exceeding three years or to a ne not exceeding eight hundred thousand shillings.

128.(1) Where under this Act any notice or other document is required or Service of notices, authorized to be served on or given to the Commissioner, then that etc.

notice or other document may be so served or given 57 of 2012, s.

22.

(a) by delivering it personally to an ofcer; or (b) by leaving it at the ofce of an ofcer; or (c) by sending it by post addressed to an ofcer in his ofcial capacity.

(2) Where under this Act any notice or other document is required or authorized to be served on or given to any person by the Commissioner, then that notice or other document may be so served or given by addressing it to that person, or, where that person is a company, to the principal ofcer or secretary of the company, and (a) delivering it personally to him; or (b) leaving it at his usual or last known place of address or the address shown on the latest return of income furnished by him or on his behalf to the Commissioner; or (c) sending by post addressed to his usual or last known place of address or to a post ofce box rented in the name of that person or of his employer or to the address shown on the latest return of income furnished by him or on his behalf to the Commissioner.

(d) by public notice through print media of national circulation.

(3) Where a notice or other document is served or given by post, service shall, in the absence of proof to the contrary, be deemed to have been effected (a) where it is sent to an address in Kenya, ten days after the date of posting; 158 [Rev.

2012 CAP.

470 Income Tax (b) where it is sent to an address outside Kenya, at the time at which the notice would be delivered in the ordinary course of post, and in proving service it shall be sufcient to prove that the envelope containing the notice or other document was properly addressed and was posted; but where the person to whom a notice or other document has been sent by registered post is informed of the fact that there is a registered letter awaiting him at a post ofce, and that person refuses or neglects to take delivery of the letter, and the letter consists of a notice or other document, then service of that notice or other document shall be deemed to have been effected.

(4) Where the income of a person is assessable and chargeable in the name of another person, then if a notice or document which is required or authorized to be served on or given to the rst mentioned person is served on or given to the other person the notice or document shall be deemed also to have been served on or given to the rst mentioned person.

129.

Where an obligation is imposed by or under this Act on a Liability of manager, etc., of corporate corporate body, the general manager or other principal ofcer of that body.

body shall be responsible for performing that obligation.

Rules.

130.

The Minister may make rules prescribing anything which is to be prescribed under, and generally for carrying out the provisions of, this Act.

Exemption from 131.

All securities of whatever nature over property, movable stamp duty.

or immovable, and all transfers of property in favour of or by the Commissioner shall be exempt from stamp duty.

Personal 132.

(1) Every person whose income is chargeable to tax under this Act shall have a personal identication number, which shall be produced identication when required under the rules prescribed by the Commissioner.

numbers.

4 of 2012, s.

21.

(2) For purpose of collection or protection of tax, any person whom the Commissioner may so require shall have a personal identication number.

(3) Any person required under this Act to make a return, statement or other document shall include the personal identication number in every document, return or statement for proper identication of that person.

(4) Any person required to make a return, statement, or other document on behalf of another person shall include the personal identication number in such a manner as may be prescribed for the purposes of proper identication of the person in whose behalf the Rev.

2012] Income Tax CAP.

470 159 return, statement or other document is submitted.

(5) Any person required under this Act to make a return, statement or other document in respect of another person shall request from that other person, and include in the return, statement or other document, the personal identication number, in the prescribed manner for proper identication of the person on whose behalf the return, statement or other document is submitted.

(6) Transactions prescribed by the Commissioner under subsection (1) or specied under the Thirteenth Schedule shall comply with the requirements relating to the personal identication number.

(7) Any person who, when required by the Commissioner, fails to comply with provisions of this section shall be liable to a default penalty of two thousand shillings for every omission.

(8) Without prejudice to any penalty that may be imposed under subsection (7), the Commissioner may, forthwith, register and issue a personal identication number to a person who fails to obtain such number as required by the Commissioner under subsection (2).

133.

(1) This Act shall have effect notwithstanding any Act of the Repeals and Community and shall not be construed as being repealed by any Act of transitional.

the Community enacted hereafter.

2 of 1975, s.

5.

(2) Subject to subsection (4), the Management Act shall, E.A.

Cap.

24 notwithstanding anything contained in the East African Community Cap.

4.

Mediation Agreement Act, cease to have the force of law in Kenya with effect from 1st January, 1974.

(3) Subject to subsection (4), the Income Tax (Allowances and Rates)(No.

2) Act, 1971, is repealed.

No.

29 of 1971.

(4) Notwithstanding subsections (2) and (3), the Management Act, and the Income Tax (Allowances and Rates)( No.

2) Act, 1971, shall remain in force for all purposes in relation to the year of income 1973 and previous years of income and the Income Tax (Allowances and Rates)( No.

2) Act, 1971, shall be read and construed as if, when enacted, the Second Schedule thereto contained the following additional paragraph 3.

The non-resident tax rates shall be the rates set out in paragraph 1 of the Third Schedule to this Act and for the purposes of this paragraph those rates shall be charged from 18th June, 1971.

160 [Rev.

2012 CAP.

470 Income Tax (5) The transitional provisions contained in the Sixth Schedule shall have effect notwithstanding anything contained in this Act.

13 of 1975, s.

2, FIRST SCHEDULE (Sections 13 & 14) 7 of 1976, s.

2, 12 of 1977, s.

5, ExEMPTIONS 8 of 1978, s.

9, 6 of 1981, s.

5, PART IINCOME ACCRuED IN, DERIVED FROM OR RECEIVED IN kENyA 8 of 1983, s.17, WhICh IS ExEMPT FROM TAx 13 of 1984, s.

5, 18 of 1984, s.

5, 1.

So much of the income of a person as is expressly exempted 8 of 1985, s.14, from income tax by or under the provisions of any Act for the time 10 of 1986, s.

33, being in force, to the extent provided by that Act.

10 of 1987, s.

36, 3 of 1988, s.

43, 10 of 1988, s.

34, 2.

The income of a person who, or organization which, is exempt 8 of 1996, s.

44, from income tax by or under any Act for the time being in force, to 8 of 1997, s.

49, the extent provided by that Act.

5 of 1998, s.

39, 6 of 2001, s.

53, 3.

(Deleted by 57 of 2012, s.

23).

10 of 2006, s.

29, 9 of 2007, s.

27, 4.

The income of 8 of 2008, s.

38, 10 of 2010, s.

32, 57 of 2012, s.

23.

The Tea Board of Kenya The Pyrethrum Board of Kenya, The Sisal Board of Kenya, The Kenya Dairy Board, The Canning Crops Board, The Central Agricultural Board, The Pig Industry Board, The Pineapple Development Authority, The Horticultural Crops Development Authority, The National Irrigation Board, The Mombasa Pipeline Board, The Settlement Fund Trustees, The Kenya Post Ofce Savings Bank, The Cotton Board of Kenya.

5.

(Deleted by 13 of 1984, s.

21.).

6.

The income, other than income from investments, of an amateur sporting association, that is to say, an association Rev.

2012] Income Tax CAP.

470 161 (a) whose sole or main object is to foster and control any outdoor sport; and (b) whose members consist only of amateurs or afliated associations the members of which consist only of amateurs; and (c) whose memorandum of association or by-laws have provisions dening an amateur or a professional and providing that no person may be or continue to be a member of that association if that person is not an amateur.

7.

Prots or gains of an agricultural society accrued in or derived from Kenya from any exhibition or show held for the purposes of the society which are applied solely to those purposes, and the interest on investments of that society.

8.

The income of a local authority.

9.

Interest on tax reserve certicates which may be issued by authority of the Government.

10.

Subject to section 26, the income of an institution, body of persons, or irrevocable trust, of a public character established solely for the purposes of the relief of the poverty or distress of the public, or for the advancement of religion or education (a) established in Kenya; or (b) whose regional headquarters is situated in Kenya, in so far as the Commissioner is satised that the income is to be expended either in Kenya or in circumstances in which the expenditure of that income is for purposes which result in the benet of the residents of Kenya Provided that any such income which consists of gains or prots from a business shall not be exempt from tax unless those gains or prots are applied solely to those purposes and either (i) the business is carried on in the course of the actual execution of those purposes; or (ii) the work in connection with the business is mainly carried on by beneciaries under those purposes; or (iii) the gains or prots consist of rents (including premiums or similar consideration in the nature of 162 [Rev.

2012 CAP.

470 Income Tax rent) received from the leasing or letting of land and chattels leased or let therewith.

and provided further that an exemption under this para- graph.

(A) shall be valid for a period of ve years but may be revoked by the Commissioner for any just cause; and (B) shall, where an applicant has complied with all the requirements of this paragraph, be issued within sixty days of the lodging of the application.

11.

The income of a person from a management or professional fee, royalty or interest when the Minister certies that it is required to be paid free of tax by the terms of an agreement to which the Government is a party either as principal or guarantor and that it is in the public interest that the income shall be exempt from tax.

12.

The income of a registered pension scheme.

13.

The income of a registered trust scheme.

14.

The income of a registered pension fund.

15.

The income of a registered provident fund.

16.

The income from the investment of an annuity fund, as dened in section 19, of an insurance company.

17.

Pensions or gratuities granted in respect of wounds or disabilities caused in war and suffered by the recipients of those pensions or gratuities.

18.

A payment in respect of disturbance, not exceeding three months salary, made in connection with a change in the constitution of the government of a Partner State or the Community to a person who, before the change, was employed in the public service of any of those governments or of the Community.

19.

(Deleted by 8 of 1978, s.

9).

20.

(Deleted by 8 of 1978, s.

9).

21.

(Deleted by 8 of 1978, s.

9).

22.

That part of the income of an ofcer of the Government or of the Community accrued in or derived from Kenya which consists Rev.

2012] Income Tax CAP.

470 163 of foreign allowances paid to that ofcer from public funds in respect of his ofce: Provided that, where a person to whom all allowance is paid is granted a deduction under section 15 in respect of expenditure incurred in relation to an activity for which the allowance is paid, then the exemption conferred by this paragraph shall not apply to so much of that allowance as is equal to the amount of that deduction.

23.

The income of the East African Development Bank and of Corporations established under Article 71 of the Treaty for East African Co-operation together with the income of subsidiary companies wholly owned by that Bank or by any of those Corporations.

24.

(Deleted by 8 of 1978, s.

9).

25.

The emoluments of an ofcer of the Desert Locust Survey who is not resident in Kenya.

26.

The emoluments (a) of members of the armed forces of a country to which section 95 of the Constitution applies; (b) of a person in the public service of the government of that country in respect of his ofce under that government where that person is resident in Kenya solely for the purpose of performing the duties of his ofce, where those emoluments are payable from the public funds of that country and are subject to income tax in that country.

27.

The emoluments payable out of foreign sources in respect of duties performed in Kenya in connection with a technical assistance or other agreement for development services or purpose to which the Government is a party to a non-resident person or to a person who is resident solely for the purposes of performing those duties, in any case where the agreement provides for the exemption of those emoluments.

28.

An education grant paid by the Government of the United Kingdom under an agreement between that government and the Government of Kenya received by a person who is employed in the public service of Kenya.

29.

The income received by way of remuneration under a contract which was entered into consequent upon nancial assistance being received from the International Co-operation Administration for the enterprise in respect of which the contract was entered into and which 164 [Rev.

2012 CAP.

470 Income Tax provides that income shall be exempt from tax.

30.

The income received by virtue of their employment by citizens of the United States of America who are employed by the Department of Agriculture of the United States of America on research work in co- operation with the Government.

31.

Gains or prots resultant from a reward paid by the United Kingdom Atomic Energy Authority for the discovery of uranium ore in Kenya, except to the extent that the reward is liable to income tax in a country outside Kenya and there is, between that country and Kenya, provision for any form of double taxation relief.

32.

All income of a non-resident person not having a permanent establishment in Kenya accrued in or derived from Kenya after 17th June, 1971, and which consists of interest or management and professional fees paid by the Tana River Development Company Limited or its successors in title.

33.

Such part of the income of the East Africa Power and Lighting Company accrued in or derived from Kenya as is certied from time to time by the Minister to have been expended (whether before or after the date of commencement of this Act) at the request of the Government either (a) in searching for a natural source in Kenya of geothermal energy; or (b) on investigations concerning the development in Kenya of electric power generation or supply, and this exemption shall take effect in the year in which the expenditure is incurred.

34.

The income of the General Superintendence Company Limited, a company incorporated in Switzerland, accrued in or derived from Kenya under an agreement dated 18th October, 1972, between that company and the Central Bank of Kenya.

35.

Interest on a savings account held with the Kenya Post Ofce Savings Bank.

36.

Such part of the income of an individual, chargeable to tax under section 3(2)(f) as consists of a gain derived from the transfer of (a) shares in the stock or funds of the Government, the High Commission or the Authority established under the Organization or the Community; (b) shares of a local authority; Rev.

2012] Income Tax CAP.

470 165 (c) a private residence if the individual owner has occupied the residence continuously for the three year period immediately prior to the transfer concerned: Provided that (i) in determining whether or not a person has occupied a residence continuously for three years, any period dur- ing which he was temporarily absent from the residence shall be ignored; (ii) references to a private residence include the immedi- ately surrounding land utilized exclusively for personal purposes as an adjunct to the residence and not for the production of income, but does not include any part of the residence and land utilized for business purposes; (iii) no individual may claim or be taken to have used more than one residence as his residence at the same time for the purposes of this Act; (iv) no individual may claim or be taken to have used more than one residence as their residence for the pur- poses of this Act at any time when they were husband and wife living together; (v) no individual shall claim or be taken to have used a residence as a residence at any time when he was depen- dant of either or both of his parents; (vi) where a residence is used in part for business purpos- es, or is transferred in a single transaction together with land and other property used for the production of income, the taxable value of that property used for residential purposes shall be separately determined from that used for business purposes or for the production of income; (d) property (being land) transferred by an individual where (i) the transfer value is not more than thirty thousand shillings; (ii) agricultural property having an area of less than one hundred acres where that property is situated outside a municipality, gazetted township or an area that is 166 [Rev.

2012 CAP.

470 Income Tax Cap.

283.

declared by the Minister, by notice in the Gazette, Cap.

284.

to be an urban area for the purposes of this Act; Cap.

300.

(e) land which has been adjudicated under the Land Consolidation Act or the Land Adjudication Act when the title to that land has been registered under the Registered Land Act and transferred for the rst time; (f) property (including investment shares) which is transferred or sold for the purpose of administering the estate of a deceased person where the transfer or sale is completed within two years of the death of the deceased or within such extended time as the Commissioner may allow in writing.

.37.

(Deleted by 57 of 2012, s.

23.) 38.

(Deleted by 10 of 1987, s.

36) 39.

(Deleted by 10 of 1987, s.

36) Cap.

488.

40.

Interest earned on contributions paid into the Deposit Protection Fund established under the Banking Act.

Cap.

470.

41.

Interest paid on loans granted by the Local Government Loans Authority established by section 3 of the Local Government Loans Act.

42.

The income of a non-resident person who carries on the business of aircraft owner, charterer or air transport operator, from such business where the country in which such non-resident person is resident extends a similar exemption to aircraft owners, charterers or air transport operators who are not resident in such country but who are resident in Kenya.

43.

The income of a registered individual retirement fund.

44.

The income of a registered home ownership savings plan.

45.

Income of the National Social Security Fund provided that the fund complies with such conditions as may be prescribed.

46.

Dividends received by a registered venture capital company.

47.

Gains arising from trade in shares of a venture company earned by a registered venture capital company within the rst ten years from the date of rst investment in that venture company by the venture capital company: Rev.

2012] Income Tax CAP.

470 167 Provided that the venture company has not been listed in any securities exchange operating in Kenya for a period of more than two years.

48.

Gains arising from trade in securities exchange operating in Cap.

485A.

Kenya by any dealer licensed under the Capital Markets Authority Act: Provided that such securities have been held for a period not exceeding twenty-four months from the date of acquisition.

49.

Interest income accrued in or derived from Kenya under nancial arrangements made or guaranteed by the Export-Import Bank of the United States, an agency of the United States of America.

50.(1) Investment income of a pooled fund or other kind of investment consisting of retirement schemes, provided that all the constituent schemes of pooled fund are registered by the Commissioner; (2) For the purposes of this paragraph, pooled fund has the No.

3 of 1997.

meaning assigned to it under the Retirement Benet Act, 1997.

51.

Interest income accruing from all listed bonds, notes or other similar securities used to raise funds for infrastructure and other social services, provided that the bonds, notes or securities shall have a maturity of at least three years.

52.

Interest income generated from cash ows passed to the investor in the form of asset-backed securities.

53.

Monthly or lump sum pension granted to a person who is sixty ve years of age or more.

PART IISECuRITIES, ThE INTEREST ON WhICh IS ExEMPT FROM TAx 1.

Interest payable to non-resident persons on the following securities 3 Kenya Government 2 per cent Stock 1977/83, 4 Kenya Government 3 per cent Stock 1973/78, Kenya Government 4per cent Stock 1971/78, Kenya Government 5 per cent Stock 1978/82, Kenya Government 5per cent Stock 1976/80, Kenya Government 6per cent Stock 1972/74, Kenya Government 6 per cent Loan to nance Development Programme 1957/60, 1960/63, 1980/93, 1 Nairobi City Council 3 per cent Stock 1970/74, 4 East African High Commission 4 per cent Stock 1972/74, East African High Commission 4 per cent Stock 1973/76 East African High Commission 5 per cent Stock 1980/84, 168 [Rev.

2012 CAP.

470 Income Tax East African High Commission 5 per cent International Co-operation Administration Loan 1978, 3 East African High Commission 4 per cent International 4 Bank for Reconstruction and Development Loans 1974 (two issues), 3 East African High Commission 5 per cent Stock 1977/83.

42.

The income of Sceptre Trust Limited accrued in or derived from Kenya from interest payable by the Government at the rate of 6 per cent on two loans each of 250, 000 made by Sceptre Trust Limited to the Government in 1959 and 1960 respectively for the purpose of Government staff housing and repayable over a period of twenty years.

3.

The income of the International Bank for Reconstruction and Development accrued in or derived from Kenya from interest payable by the Government on a loan to be made in various currencies equivalent to $8, 400, 000 (eight million four hundred thousand dollars) by the International Bank for Reconstruction and Development to the Government under the terms of loan Agreement No.

303 KE dated 29th November, 1961, for the purpose of Land Settlement and Development Projects.

4.

The income of the Colonial Development Corporation accrued in or derived from Kenya from interest payable by the Government on a loan of 1,500,000 to be made by the Colonial Development Corporation to the Government under an agreement dated 18th December, 1961, for the purpose of Land Settlement and Development Projects.

5.

The income of the Life and Casualty Insurance Company of Tennessee, a company incorporated in the United States of America, in so far as that income represents interest accrued in respect of or is derived from a loan of an amount not to exceed an aggregate of US$ 2, 100,000 charged on the revenues of the City Council of Nairobi and secured by a document described as a Loan Agreement, dated 1st July, 1969, made between the City Council of Nairobi of the one part and the Loan and Casualty Insurance Company of Tennessee of the other part relating to a project for housing development situated at Kimathi Estate, Nairobi.

6.

The income of Kreditanstalt fur Wiederaufbau a statutory Corporation incorporated in the Federal Republic of Germany in so far as that income represents interest accrued in respect of or derived from a loan of Deutsch Mark 27, 257, 515 made by that corporation to the Chemelil Sugar Company Limited under the provisions of a document described as a Loan Agreement dated 5th May, 1967, made between Chemelil Sugar Company Limited of the one part and Kreditanstalt Rev.

2012] Income Tax CAP.

470 169 fur Wiederaufbau of the other part relating to a loan for the supply of factory equipment for a sugar factory situated at Chemelil.

7.

The income of SIFIDA Investment Company S.A., a company incorporated in Luxembourg, in so far as it consists of interest accrued in or derived from Kenya, whether before or after the date of commencement of this Act.

8.

The income of the Export Development Corporation of Canada in so far as that income represents interest accrued in respect of or derived from a loan of Canadian $3, 900, 000 under a loan agreement dated 22nd March, 1972, between Panafrican Paper Mills (East Africa) Limited of the one part and Export Development Corporation of the other part.

9.

The income of Export-Import Bank of the United States, an agency of the United States of America, in so far as it consists of interest accrued in or derived from Kenya.

SECOND SCHEDULE (Sections 4, 5 and 15) 2 of 1975, s.

5, 13 of 1975, s.

2, 7 of 1976, s.

2, PART IDEDuCTIONS IN RESPECT OF CAPITAl ExPENDI- L.N.

123/1976, TuRE ON CERTAIN buIlDINGS L.N.

189/1977, 8 of 1978, s.

9, 13 of 1979, s.

5, 6 of 1981, s.

5, 14 of 1982, s.

21, 18 of 1984, s.

6, 8 of 1985, s.15, 10 of 1986, s.

34, 10 of 1987, s.

37, 10 of 1988, s.

35, 2 of 1989, s.

22, 4 of 1999, s.

39, 9 of 2000, s.

54, 6 of 2001, s.

54, 15 of 2003, s.

40, 4 of 2004, s.

60, 6 of 2005, s.

35, 10 of 2006, s.

30, 9 of 2007, s.

28, 8 of 2008, s.

39, 8 of 2009, s.

29, 10 of 2010, s.

33, 57 of 2012, s.

24.

170 [Rev.

2012 CAP.

470 Income Tax Deductions.

1.

(1) Subject to this Schedule, where a person incurs capital expenditure on the construction of an industrial building to be used in a business carried on by him or his lessee, a deduction equal (a) in a case where the amount of the deduction has not been increased under this Schedule and which is not a case referred to in item (c), to one-fortieth; and (b) in a case where that amount has been so increased, to that fraction as so increased; and (c) in a case referred to in paragraph 5(1)(c), to one twenty-fth, of that expenditure shall be made in computing the gains or prots of that person for any year of income in which the building is so used: Provided that (i) where the building was so used for part only of that year of income, the deduction shall be proportionately reduced; (ii) where the building is sold and continues to be an in- dustrial building used by the purchaser or his lessee, the deduction shall thereafter be made in computing the prots or gains of that person for any year of income in which the building is so used; (iii) where any deductions in respect of that capital expen- diture are deductible in accordance with paragraph 24, 24A or 24B the deductions under this paragraph shall be made by reference to that capital expenditure reduced by the amount of those deductions; (iv) where in any year of income an amount has in accordance with paragraph 24A(3) been treated as a trading receipt, the deductions under this paragraph shall be made by reference to that capital expenditure reduced by any deduction made in accordance with paragraph 24 and that expenditure shall be deemed to have been incurred in that year of income.

(cc) in a case referred to in paragraph 1(1)(a) for the year of income commencing on or after 1st January, 2010, ten per cent; Rev.

2012] Income Tax CAP.

470 171 (d) in a case referred to in paragraph 5(1)(c) and 5(1)(e) for the year commencing on or after the 1st January, 2007, one-tenth.

(dd) in a case referred to in paragraph 5(1)(e) for the year of income commencing on or after 1st January, 2010, fty per cent.

(e) in the case referred to in paragraph 5(1)(f) for the year commencing on or after the 1st January, 2008, ve per cent; (ee) in a case referred to in paragraph 5(1)(f) for any year of income commencing on or after 1st January 2010, where roads, power, water sewer and other social infrastructure have been provided by the person incurring the capital expenditure, twenty-ve percent.

(1A) Where a building is an industrial building within the meaning of subparagraph (1), the following civil works or structures on the premises of the building shall be deemed to be part of the building where they relate or contribute to the use of the building (i) roads and parking areas; (ii) railway lines and related structures, (iii) water, industrial efuent and sewage works; (iv) communications and electrical posts and pylons and other electricity supply works; and (v) security walls and fencing.

(2) Notwithstanding anything in this Part, in no case shall the amount of deduction for a year of income exceed that which, apart from the making of that deduction, would be the residue of expenditure at the end of that year of income.

(3) For the purposes of this paragraph, construction of an industrial building includes the expansion or substantial renovation or rehabilitation of an industrial building, but does not include routine maintenance or repair.

2.

Notwithstanding paragraph 1(1)(a), where the Commissioner Increase of is satised that, having regard to the type of construction or to the use deductions.

to which an industrial building is put, its life is likely to be substantially less than forty years, he may, upon the application of the person entitled to claim a deduction under this Part, increase the amount of the deduction 172 [Rev.

2012 CAP.

470 Income Tax to such am amount as he considers just and reasonable, and all the provisions of this Part shall apply accordingly.

Ascertainment 3.

In this Part, the residue of expenditure at any time shall be of residue of expenditure.

(a) in relation to a building which had not been used before the year of income 1974, the capital expenditure incurred on the construction of the building as computed under paragraph (1) less the total of (i) any deductions made under this Part; and (ii) in a case to which proviso (iv) of paragraph 1 applies, the amount of deductions under this part which were deducted in computing the amount of the trading receipt under paragraph 24A(3); and (iii) any deductions which would have been made had the building been an industrial building when rst used; (b) in relation to a building which at the end of the year of income 1973 was an industrial building for the purposes of the Management Act, the residue of expenditure as ascertained under paragraph 3 of the Second Schedule to that Act less any deductions made under this Part; (c) in relation to a building which had been used before the end of the year of income 1973 but was not an industrial building for the purposes of the Management Act at the end of that year of income, the amount which would have been the residue of expenditure as ascertained under item (b) if it had always been an industrial building.

4.

(1) Where capital expenditure is incurred on the construction of a building and before that building is used, it is sold (a) expenditure actually incurred on the construction thereof shall be left out of account for the purposes of this Schedule; but (b) the person who purchases the building shall be deemed to have incurred capital expenditure on the construction thereof equal to the capital expenditure actually incurred on the construction of the building or to the amount paid by him, whichever is the less; but where the building is sold more than once before it is used, item (b) Rev.

2012] Income Tax CAP.

470 173 shall have effect only in relation to the last sale.

(2) Where the expenditure incurred on the construction of a building was incurred by a person carrying on a business which consists, as to the whole or any part thereof, in the construction of buildings with a view to their sale before the building is used he sells it in the course of that business or part thereof, subparagraph (1)( b) shall have effect as if the reference to the capital expenditure actually incurred on the construction of the building were a reference to the price paid on the sale.

5.

(1) Subject to this paragraph, in this Schedule industrial building means (a) a building in use (i) for the purposes of a business carried on in a mill, factory or other similar premises; or (ii) for the purposes of a transport, dock, bridge, tunnel, inland navigation, water, electricity or hydraulic power undertaking; or (iii) for the purposes of a business which consists in the manufacture of goods or materials or the subjection of goods or materials to any process; or (iv) for the purposes of a business which consists in the storage of goods or materials (A) which are to be used in the manufacture or other goods or materials; or (B) which are to be subjected, in the course of a business, to any process; or (C) which, having been manufactured or produced or subjected, in the course of a business, to any process, have not yet been delivered to any purchaser; or (D) on their arrival by sea or air into any part of Kenya; or (v) for the purpose of a business consisting of ploughing or cultivating agricultural land as dened in paragraph 22 (other than land in the occupation of the person carrying on the business) or doing any other operation on the land, or threshing the crops of another person; or 174 [Rev.

2012 CAP.

470 Income Tax (vi) for the purposes of a business which may be declared by the Minister by notice in the Gazette as being within the provi- sions of this paragraph either generally, or in relation to a particular class, or in particular instance within that class; (b) a prescribed dwelling-house, that is to say a dwelling house constructed for and occupied by employees of a business carried on by the person owning the dwelling-house and which conforms with prescribed conditions; (c) a building which is in use as a hotel or part of a hotel and which the Commissioner has certied to be an industrial building where such a building in use as a hotel includes any building directly related to the operations of the hotel contained within the grounds of the hotel complex, including staff quarters, kitchens, and entertainment and sporting facilities; (d) a building in use for the welfare of workers employed in any business or undertaking referred to in item (a).

(e) a building in use as a hostel or an educational building ,or a building in use for training, provided such building has been certied by the Commissioner for the purposes of this paragraph; (f) a building in use as a rental residential building where such building is constructed in a planned development area approved by the Minister for the time being responsible for matters relating to housing; (ff) (Deleted by 57 of 2012, s.

24) (2) Item (a) of subparagraph (1) shall apply in relation to a part of a business or undertaking as it applies in relation to a business or undertaking; but where part only of a business or undertaking complies with the conditions set out in that item, a building shall not, by virtue of this subparagraph, be an industrial building unless it is in use for the purpose of that part of the business or undertaking.

(3) Notwithstanding subparagraphs (1) and (2) but subject to subparagraph (4), the expression industrial building does not include a building in use as, or as part of, a retail shop, showroom, ofce or dwelling-house, or for any purpose ancillary to the purposes of a retail shop, showroom or ofce; but this subparagraph shall not apply to a prescribed dwelling-house, or to part of, a building which is a dwelling-house constructed for the occupation by persons employed Rev.

2012] Income Tax CAP.

470 175 in a business or undertaking referred to in subparagraph (1) or to a building constructed for the welfare of those persons, if that building will cease to belong to the person carrying on the business or undertaking on the coming to an end of a concession under which the business or undertaking is carried on, or if the building would have little or no value to that person if he ceased to carry on the business or undertaking on the termination of, or had little or no value to that person where the business or undertaking ceased to be carried on during, the year of income in respect of which a claim for a deduction has been made under this Part.

(4) Where part of a building is, and part thereof is not, an industrial Building and the capital expenditure which has been incurred on the construction of the second-mentioned part is not more than one- tenth of the total capital expenditure which has been incurred on the construction of the building, the whole building shall be treated as an industrial building.

(5) In this paragraph bridge means a bridge, the use of which is subject to a charge or toll; and bridge undertaking shall be construed accordingly; crop includes any form of vegetable produce; dock includes a harbour, wharf, pier or jetty or other works in or at which vessels can ship or unship merchandise or passengers, not being a pier or jetty primarily used for recreation; and dock undertaking shall be construed accordingly.

electricity undertaking means an undertaking for the generation, transformation, conversion, transmission or distribution of electrical energy; hydraulic power undertaking means an undertaking for the supply of hydraulic power; retail shop includes premises of a similar character where a retail business (including repair work) is carried on; undertaking does not include an undertaking not carried on by way of trade; water undertaking means an undertaking for the supply of water for public consumption.

6.

(1) A reference in this Part to the incurring of capital expenditure Interpretation.

on the construction of building does not include capital expenditure on 176 [Rev.

2012 CAP.

470 Income Tax the provision of machinery or on an asset which has been treated for a year of income as machinery.

(2) References in this Part to capital expenditure incurred on the construction of a building do not include capital expenditure on the acquisition of, or of rights in or over, land.

Expenditure 6A.

(1) Where a person incurs capital expenditure on the in respect of construction of a commercial building to be used in a business carried commercial building.

on by him or his lessee on or after the 1st January, 2013, and the person 57 of 2012, s.

24.

has provided roads, power, water, sewers and other social infrastructure, there shall be deducted, in computing the gains or prots of that person for any year of income in which the building is so used, a deduction equal to twenty ve percent per annum.

(2) For the purpose of this paragraph commercial building includes a building for use as an ofce, shop or showroom but shall not include a building which qualies for deduction under any other paragraph or a building excluded for industrial building deduction under paragraph 5(3) of this Schedule.

PART IIDEDuCTIONS IN RESPECT OF CAPITAl ExPENDITuRE ON MAChINERy Wear and tear 7.

(1) Subject to this Part, where, during a year of income, deductions.

machinery owned by a person is used by him for the purposes of his business, there shall be made in computing his gains or prots for that year of income a deduction (in this Part referred to as a wear and tear deduction).

(2) The amount of the wear and tear deduction for a year of income shall be the appropriate percentage of the written down value at the end of that year, before making the deduction, of the machinery classied as follows (a) tractors, combine harvesters, heavy earth-moving equipment and such other heavy self-propelling machines of a similar nature as in his discretion the Commissioner, having regard to the likely usage and depreciation in any particular case, may agree; (b) other self-propelling vehicles, including aircraft; (c) all other machinery, including ships; Rev.

2012] Income Tax CAP.

470 177 and the appropriate percentage shall be 37 per cent for class (a), 25 per cent for class (b) and 12 per cent for class (c).

(3) For machinery purchased on or after 1st January, 1992, the amount of wear and tear deduction for a year of income shall be the appropriate percentage of the written down value at the end of that year, before making that deduction, of the machinery classied as follows (a) tractors, combine harvesters, heavy earth-moving equipment and such other heavy self-propelling machines of a similar nature as in his discretion the Commissioner, having regard to the likely usage and depreciation in any particular case, may agree; (b) computers and peripheral computer hardware, calculators, copiers and duplicating machines; (c) other self-propelling vehicles, including aircraft; (d) all other machinery, including ships; and the appropriate percentage shall be 37.5 per cent for the class of machinery in subparagraph (a), 30 percent for the class of machinery in subparagraph (b), 25 per cent for the class of machinery in subparagraph (c), and 12.5 per cent for the class of machinery in subparagraph (d); (4) For telecommunication equipment purchased and used by a telecommunication operator, other than machinery specied under subparagraph (3)(d), the amount of wear and tear for a year of income shall be twenty percent the amount of expenditure incurred.

(5) Where capital expenditure of a kind referred to in subparagraph (1) is incurred on or after the 1st January, 1998, that subparagraph shall be read as though the expression one million shillings were substituted for thirty thousand shillings wherever the latter expression occurs.

8.

(1) The written down value of each class of machinery referred Ascertainment of to in paragraph 7(2) or 7(3) shall be calculated separately as at any written down value time and shall be the amount still unallowed of capital expenditure on machinery of the class as construed in paragraph 9 of the Second Schedule to the Management Act, and as specied in paragraph 7 with the addition of the costs of capital expenditure on machinery of that class purchased and the deduction of the amount realized on the sale of machinery of that class sold in the year of income 1974, or a succeeding year of income, less deductions made under this Part; and where the amount realized for machinery of a class sold in a year of income exceeds that which, but for the deduction of that amount would be written down 178 [Rev.

2012 CAP.

470 Income Tax value of machinery of that class at the end of that year of income, the excess shall not be deducted but shall be treated as a trading receipt or, conversely, as a trading loss: Provided that (i) the cost of capital expenditure of any class of machinery in respect of which a deduction is allowable in accordance with paragraph 24, 24A or 24B shall be deemed to be that cost reduced by the amount of those deductions; (ii) where in any year of income an amount has, in accordance with paragraph 24A(3), been treated as a trading receipt, so much thereof as is referable to capital expenditure incurred on machinery of that class shall be deemed to be capital expenditure incurred on the purchase of machin- ery in that class in the year of income next succeeding that year of income; (2) Subject to this Part, where machinery is brought into use for the purposes of a trade without being purchased or ceases permanently to be so used without being sold it shall be deemed to have been purchased or sold as the case may be and the cost or amount realized shall be deemed to be the price which it would have fetched if sold in the open market.

Application to 9.

Where machinery is let upon terms that the burden of the wear lessors.

and tear thereof falls directly upon the lessor, this Part shall apply in relation to him as if the machinery were, during the period of the letting, in use for the purposes of a business carried on by him.

Expenditure 10.

Where a person carrying on a business incurs capital on buildings in expenditure on alterations to an existing building incidental to the connection with installation of machinery for the purposes of the business, this Schedule the installation of shall have effect as if that expenditure were capital expenditure on machinery.

the provision of that machinery and as if the works representing that expenditure formed part of that machinery.

Balancing deductions 11.

(1) Where wear and tear deductions or investment deductions and balancing charges.

have been made in computing the gains or prots of a person under paragraphs 7, 24, 24A or 24B and that person ceases to carry on the business for the purposes of which the machinery was used and the machinery ceases to be owned by him, there shall be made in computing his gains or prots for the year of income in which the cessation occurs, a deduction or charge (in this Part referred to as a balancing deduction or a balancing charge); but (a) for the purposes of this paragraph a partnership shall be Rev.

2012] Income Tax CAP.

470 179 deemed not to have ceased to carry on a business unless all the partners who carried it on cease to carry it on; and (b) where the machinery is sold by the liquidator of a company which is in the course of being wound up, the balancing deduction or balancing charge shall be made in computing the gains or prots of the company for the year of income in which the winding up commenced; and (c) where, in the case of a balancing deduction, the total income for a year of income before taking account of the deduction is less than the amount of the deduction, the excess may be carried back and allowed in calculating the total income of the next preceding year of income, and so on, for as long as is necessary for the deduction to be absorbed by the total income of preceding years, not exceeding in all six in number.

(2) Subject to this Part, where on cessation of a trade a balancing deduction or a balancing charge is to be made under this paragraph and (a) no sale moneys are received by the person owning the machinery, or the written down value at the time of the cessation exceeds those moneys, the balancing deduction shall be the written down value at the time of cessation, or the excess thereof over those moneys, as the case may be; (b) the sale moneys exceed the written down value, if any, at the time of cessation, the balancing charge shall be the amount of the excess or, where the written down value is nil, the amount of those moneys, as the case may be.

12.

Where a person succeeds to a business which until that time Effect in certain was carried on by another person, and machinery which, immediately successions, before the succession was in use for the purposes of the business without transfers, etc.

being sold is, immediately after the succession, in use for the purposes of the business, that machinery shall, for the purposes of this Schedule, be treated as if it had been sold at the date of the succession to the person or persons carrying on the business immediately thereafter and as if the net proceeds of the sale had been the written down value of the machinery.

13.

(1) This paragraph shall have effect in relation to sales of Special provisions as machinery where either to certain sales.

(a) the buyer is a body of persons over whom the seller has control, or the seller is a body of persons over whom the buyer has control, or both the seller and the buyer are bodies of persons and some other person has control over both of 180 [Rev.

2012 CAP.

470 Income Tax them; or (b) it appears with respect to the sale or with respect to transactions of which the sale is one, that the sole or main benet which, apart from this paragraph, might have been expected to accrue to the parties or any of them was the obtaining of a deduction under this Schedule.

(2) Where the machinery is sold at a price other than that which it would have fetched if sold in the open market, then, subject to this paragraph, the like consequences shall ensue for the purposes of this Schedule to all persons concerned as would have ensued if the machinery had been sold for the price which it would have fetched if sold in the open market.

(3) Where the sale is one to which subparagraph (1)(a) applies and subparagraph (1)(b) does not apply, and is a sale which would give rise to a balancing charge, and the parties to the sale by notice in writing to the Commissioner so elect, then subparagraph (2) shall not have effect but the same consequences shall ensue to the buyer and seller as would have ensued if the price for which the machinery was sold had been the written down value; but no election shall be made in any case where either the buyer or the seller is at the time of the sale a non-resident person.

Private use.

14.

Where machinery owned by a person is, during a year of income, used by him for the purposes of a business carried on by him and also used by him for other purposes, then in determining the amount of a wear and tear deduction or a balancing deduction or balancing charge or an amount treated as a trading receipt or the written down value of that machinery for a year of income, regard shall be had to all the relevant circumstances of the case and in particular to the extent of the use for those other purposes and the Commissioner shall make such adjustments as he may determine to be just and reasonable.

Expenditure on 15.

(1) For the purposes of this Schedule, where capital private vehicles.

expenditure in excess of thirty thousand shillings was incurred on or after 1st January, 1961, in respect of a road vehicle other than a commercial vehicle or a vehicle whose purchaser is a person whose main business is the hire or sale of vehicles, and such vehicles are used exclusively for hire or as stock-in-trade, that capital expenditure shall be deemed to be thirty thousand shillings; where the road vehicle is sold the sale price shall be deemed to be such proportion of the proceeds of sale as the Commissioner may determine to be just and reasonable, having regard to the original purchase price and the proportion thereof deemed under this paragraph to be capital expenditure.

(2) Where capital expenditure of a kind referred to in subparagraph Rev.

2012] Income Tax CAP.

470 181 (1) was incurred on or after 1st January, 1981, that subparagraph shall be read as though the expression seventy ve thousand shillings were substituted for thirty thousand shillings wherever the latter expression occurs.

(3) Where capital expenditure of a kind referred to in subparagraph (1) is incurred on or after the 1st January, 1990, that subparagraph shall be read as though the expression one hundred thousand shillings were substituted for thirty thousand shillings wherever the latter expression occurs.

(4) Where capital expenditure of a kind referred to in subparagraph (1) is incurred on or after the 1st January, 1997, that subparagraph shall be read as though the expression ve hundred thousand shillings were substituted for thirty thousand shillings wherever the latter expression occurs.

(5) Where capital expenditure of a kind referred to in subparagraph (1) is incurred on or after the 1st January, 1998, that subparagraph shall be read as though the expression one million shillings were substituted for thirty thousand shillings wherever the latter expression occurs.

(6) Where capital expenditure of a kind referred to in subparagraph (1) is incurred on or after the 1st January, 2006, that subparagraph shall be read as though the expression two million shillings were substituted for thirty thousand shillings wherever the latter expression occurs.

PART IIIDEDuCTIONS IN RESPECT OF MINING OPERATIONS 16.

(1) In this Part, except where the context otherwise requires Denition for Part III.

expenditure means capital expenditure incurred in Kenya by a person carrying on a mining operation (a) in searching for or in discovering and testing deposits of minerals, or in winning access to those deposits, whether or not the search is, or those deposits are, in an area contiguous to a mine in relation to which that person carries on mining operations; (b) in the acquisition of, or of rights in or over, deposits other than the acquisition from a person who has carried on mining in relation to those deposits; (c) in the provision of machinery which would have little or no value to that person if the mine ceased to be worked on the termination of the year of income in respect of which a 182 [Rev.

2012 CAP.

470 Income Tax claim for a deduction has been made under this Part, and a premium, or consideration in the nature of a premium, paid for the use of that machinery; (d) on the construction of a building or works which would have little or no value if the mine ceased to be worked on the termination of the year of income in respect of which a claim for a deduction has been made under this Part; (e) on development, general administration and management prior to the commencement of production or during a period of non-production; but the expression expenditure shall not include (i) expenditure on the acquisition of the site of those deposits, or of the site of those buildings or works, or of rights in or over the site; (ii) expenditure on works constructed wholly or mainly for subjecting the raw produce of those deposits to a process except a process designed for preparing the raw product for use as such; mineral does not include common clay, murram, sand, limestone, sandstone, brine, diatomite, gypsum, anhydride, sulphur, dolomite, kaolin, bauxite, sodium or potassium compounds, or any other mineral substance which for the time being is declared not to be a Cap.

306.

mineral under section 2 of the Mining Act, unless it has been obtained by underground mining operation and does not include a specied mineral; mining includes every method or process by which a mineral is won.

(2) Reference in this Part to assets representing expenditure includes, in relation to expenditure on searching for, discovering and testing deposits, results obtained from any search, exploration or inquiry upon which the expenditure was incurred.

Deductions.

17.

(1) Subject to this Schedule, where a person carrying on a business of mining incurs expenditure in a year of income there shall be made, in computing his gains or prots for that year of income, a deduction equal to two-fths of that expenditure and in each of the following six years of income a deduction equal to one-tenth of that expenditure.

(2) Notwithstanding anything contained in subparagraph (1), where the Commissioner is satised that, having regard to the estimated ore reserves and to any other relevant information, the mine is likely to Rev.

2012] Income Tax CAP.

470 183 be worked before the expiration of six years from the end of the year of income in which the expenditure was incurred, he may, upon the application of the person who incurred the expenditure, increase the amount of the deductions for a year to such amount as he may consider just and reasonable.

(3) Where the amount of a deduction under this Part has been in any manner varied for a year, then deductions for subsequent years of income shall be so adjusted that the sum of deduction for all years of income shall not exceed the expenditure.

18.

Where a person (the transferor) is entitled to a deduction Apportionment of under paragraph 17 in respect of expenditure, and his interest in the asset deductions.

represented by that expenditure, or in part of the asset, is transferred by operation of law or otherwise to some other person (the transferee) (a) the amount of the deduction, for the year of income in which the transfer takes place, shall be apportioned in such manner as the Commissioner may determine to be just and reasonable between the transferee and the transferor, and (b) the transferee shall, to the exclusion of the transferor, be entitled, where the interest transferred is in the whole of the asset, to the whole of the deduction for a subsequent year of income, and where the interest transferred is in part only of the asset, to so much of the deduction as the Commissioner may determine to be just and reasonable.

19.

Where separate and distinct mining operations are carried on Operations on by the same person in mines that are not contiguous, the mines shall separate mines be treated for the purposes of this Part as if separate mining operations treated separately.

were carried on in relation thereto.

20.

(1) Expenditure incurred for the purpose of a business of Expenditure incurred mining by a person about to carry it on shall be treated for the purposes by persons not engaged in business of mining.

of this Part as if it had been incurred by that person on the rst day on which he does carry it on.

(2) Where a person incurs expenditure to which this Part applies on searching for or on discovering and testing deposits of minerals, or winning access to those deposits and, without having carried on a business of mining, sells assets representing that expenditure in relation to those deposits, then if the purchaser carries on a business of mining, the purchaser shall, for the purposes of that business be deemed to have incurred expenditure to which this Part applies equal to the price paid 184 [Rev.

2012 CAP.

470 Income Tax by him for those assets.

Sum received by 21.

Where, under subparagraph (2) of paragraph 20, the vendor treated as purchaser of assets representing expenditure is deemed to have incurred trading receipt.

expenditure to which this Part applies equal to the price paid by him for those assets, then the sum received by the vendor as the price for those assets, after deducting therefrom expenditure incurred by him in selling those assets and expenditure incurred by him in Kenya on searching for, discovering, testing and winning access to mineral deposits, so far as that expenditure has not been otherwise deducted in ascertaining his total income for a year of income, shall be treated as a trading receipt for the year of income in which the sale took place; but if the vendor so requests in writing the Commissioner may divide the amount of that sum into so many portions, not exceeding six, as he may think t, and one portion shall be taken into account in ascertaining the total income of the vendor for the year of income in which the sale took place and for each of the previous years of income corresponding to the number of portions.

PART IVDEDuCTIONS IN RESPECT OF CAPITAl ExPENDITuRE ON AGRICulTuRAl lAND Deductions in respect 22.

(1) Subject to this Schedule, where in a year of income the of capital expenditure owner or tenant of agricultural land incurs capital expenditure on the on farm works construction of farm works there shall be made, in computing his gains or prots for that year of income and the four following years of income, a deduction equal to one-fth of that expenditure Provided that (a) where in any year of income commencing on or after the 1st January, 1985, the owner or tenant of agricultural land incurs capital expenditure on the construction of farm works, there shall be made, in computing his gains or prots for that year of income and the two following years of income, a deduction equal to one-third of that expenditure; (b) where in any year of income commencing on or after the 1st January, 2007, the owner or tenant of agricultural land incurs capital expenditure on construction of farm works, there shall be made, in computing his gains or prots for that year of income, a deduction equal to one-half of that expenditure.

(c) where in any year of income commencing on or after 1st January, 2011, the owner or tenant of agricultural land incurs capital expenditure on the construction of farmworks, there shall be made, in computing his gains or prots for that year Rev.

2012] Income Tax CAP.

470 185 of income, a deduction equal to a hundred percent of that expenditure.

(2) No capital expenditure shall be taken into account for the purposes of this paragraph unless it is incurred for the purposes of husbandry on the agricultural land in question.

(3) Where capital expenditure (a) is on a farm-house, one-third only of the expenditure shall be taken into account or, if the accommodation and amenities of the farmhouse are out of due relation to the nature and extent of the farm, such lesser proportion thereof as the Commissioner may determine to be just and reasonable; (b) is incurred on assets other than a farmhouse, being an asset which is to serve partly the purpose of husbandry and partly other purposes, then only such proportion thereof as the Commissioner may determine to be just and reasonable shall be taken into account for the purposes of this paragraph.

(4) Where a person (the transferor) would, if he continued to be the owner or tenant, as the case may be, of agricultural land, be entitled to a deduction under this paragraph in respect of capital expenditure and the whole of his interest in the land in question, or in part of that land, is transferred, whether by operation of law or otherwise, to some other person, (the transferee) (a) the amount of the deduction, if any, for a year of income in which the transfer takes place, shall be apportioned in such a manner as the Commissioner may determine to be just and reasonable between the transferor and the transferee; and (b) the transferee shall, to the exclusion of the transferor, be entitled, where the interest transferred is in the whole of the land, to the whole of the deduction for any subsequent year of income, and where the interest transferred is in part only of the land, to so much of the deduction as the Commissioner may determine to be just and reasonable.

(5) For the purposes of subparagraph (4) where an interest in land is a leasehold interest and that leasehold interest comes to an end, then that interest shall be deemed to have been transferred (a) if an incoming tenant makes a payment to the outgoing tenant in respect of assets representing the expenditure in question, to the incoming tenant; and 186 [Rev.

2012 CAP.

470 Income Tax (b) in any other case, to the owner of the interest in immediate reversion on the leasehold interest.

(6) Where the amount of a deduction under this Part has been in any manner varied for a year, then deductions for subsequent years of income shall be so adjusted that the sum of deductions for all years of income shall not exceed the expenditure.

23.

In this Part Denition for Part IV.

agricultural land means land occupied wholly or mainly for the purposes of a trade of husbandry; farm works means farmhouses, labour quarters, any other immovable buildings necessary for the proper operation of the farm, fences, dips, drains, water and electricity supply works other than machinery, windbreaks, and other works necessary for the proper operation of the farm.

PART VINVESTMENT DEDuCTIONS Buildings and 24.

(1) Subject to this Schedule, where capital expenditure is machinery incurred (a) on the construction of a building and on the purchase and installation therein of new machinery, and the owner of that machinery, being also the owner or lessee of that building, uses that machinery in that building for the purposes of manufacture; or (b) on the purchase and installation of new machinery in a part of a building other than a building or part thereof previously used for the purposes of manufacture, and (i) the owner of the new machinery subsequently uses that ma- chinery in that building for the purposes of manufacture; and (ii) the machinery has not been installed substantially in replacement of machinery previously in use in an existing business carried on by the owner of that new machinery; (c) on or after the 1st January, 1992 on the construction of a building where the owner or the lessee of that building uses the building for the purposes of manufacture; or (d) on or after the 1st January, 1992 on the purchase and Rev.

2012] Income Tax CAP.

470 187 installation of machinery to be used for the purpose of manufacture; or (dd) on or after 1st January 2005, on the purchase of machinery which is subsequently leased and used for the purpose of manufacture.

(e) on the construction of a hotel building which is certied as an industrial building under paragraph 5(1)(c); there shall be deducted, in computing gains or prots of the person incurring that expenditure for the year of income in which they were rst used (hereinafter referred to as the year of rst use), either both the building and machinery referred to in subparagraph (a) or both the machinery and, for the purpose of manufacture, the part of the building in which that machinery has been installed referred to in subparagraph (b), or the building referred to in subparagraph (c), provided that, prior to its rst being used for manufacture after its completion, it has been used for no other purpose, or the machinery referred to in subparagraph (d) or (dd), or the building referred to in subparagraph (e), or the building or machinery referred to in subparagraph (f) as the case may be, a deduction referred to as an investment deduction.

(f) on the construction of a building or purchase and installation of machinery outside the City of Nairobi or the Municipalities of Mombasa or Kisumu whereof the value of the investment is not less than two hundred million shillings; (g) on the purchase of lming equipment by a local lm producer licensed by the Minister responsible for matters relating to communication; (2) The amount of the investment deduction under sub paragraph (1) shall (a) where the construction, installation or use, as the case may be, occurs outside the municipalities of Nairobi or Mombasa, be equal to the percentage of the capital expenditure applicable in accordance with the following table Where the year of Percentage of the rst the use in any year Capital Expenditure of income or accounting year commencing on or after 188 [Rev.

2012 CAP.

470 Income Tax st 1 January, 1988 60% st 1 January, 1989 75% st 1 January, 1990 85% st 1 January, 1995 60% st 1 July, 2000 100% st 1 January, 2002 85% st 1 January, 2003 70% st 1 January, 2004 100% st 1 January, 2005, 100% st 1 January, 2006, 100% st 1 January, 2007, 100% st 1 January, 2008, 100% (b) where the construction, installation or use, as the case may be, occurs within the municipalities of Nairobi and Mombasa, be equal to the percentage of the capital expenditure applicable in accordance with the following table Where the year of rst the use Percentage of the in any year of income or Capital Expenditure accounting year commencing on or after st 1 January, 1988 10% st 1 January, 1989 25% st 1 January, 1990 35% st 1 January, 1995 60% st 1 July, 2000 100% st 1 January, 2002 85% st 1 January, 2003 70% st 1 January, 2004 100% st 1 January, 2005 100% st 1 January, 2006 100% st 1 January, 2007 100% st 1 January, 2008 100% (c) in the case of an investment referred to in subparagraph (1) (f), be equal to one hundred and fty percent of the capital expenditure; (d) in the case of the equipment referred to in subparagraph (1)(g), be equal to one hundred percent of the capital expenditure.

(3) For the purposes of this paragraph (a) where, under paragraph 24 (1)(a) or paragraph 24 (1)(c) Rev.

2012] Income Tax CAP.

470 189 a building is used partly for the purposes of manufacture and partly for other purposes, the capital expenditure on which the deduction in respect of the building is calculated shall be the capital expenditure attributable to that portion of the building which is used for the purposes of manufacture; but where the capital expenditure so attributable exceeds nine-tenths of the total capital expenditure incurred on the construction of the building the whole building shall be treated as used for purposes of manufacture; (b) where an existing building is extended by further construction, the extension shall be treated as a separate building; (c) capital expenditure incurred on the construction of a building does not include capital expenditure on the acquisition of, or of rights in or over, any land; (d) building includes any building structure and where the building is used for the purposes of manufacture it includes the civil works and structures deemed to be part of an industrial building under paragraph 5(1A) of this Schedule; installation means afxing to the fabric of a building in a manner necessary for and appropriate to the proper operation of the machinery concerned: (e) machinery means machinery and equipment used directly in the process of manufacture, and includes machinery and equipment used for the following ancillary purposes (i) generation, transformation and distribution of electricity; (ii) clean-up and disposal of efuents and other waste products; (iii) reduction of environmental damage; (iv) water supply or disposal; and (v) workshop machinery for the maintenance of the ma- chinery.

manufacture means the making (including packaging) of goods or materials from raw or partly manufactured materials or other goods, or the generation of electrical energy for supply to the national grid or the transformation and distribution of electricity through the national grid but does not extend to any activities which are ancillary to manufacture, such as design, storage, transport or administration; 190 [Rev.

2012 CAP.

470 Income Tax new means not having previously been used by any person, or acquired or held (other than by a supplier in the normal course of trade) by any person for use by the person incurring expenditure under this paragraph.

Capital expenditure 24A.

(1) Subject to this Schedule, where capital expenditure is on buildings incurred and machinery for purposes of (a) on or after 1st January, 1988, on the construction of a manufacture under building and on the purchase and installation therein of new bond.

machinery and the owner of that machinery being also the owner of that building uses that machinery for the purposes of manufacture under bond; or (b) on or after 1st January, 1996, on the purchase and installation of machinery to be used for the purposes of manufacture under bond; there shall be deducted in computing the gains or prots of the person incurring that expenditure for the year of income in which the building and machinery referred to in paragraph (a) or the machinery referred to in paragraph (b) was rst used for manufacture under bond, a deduction referred to as an investment deduction.

(2) The amount of the investment deduction under subparagraph (1) shall be equal to (a) seventy-ve per cent of that capital expenditure where that manufacture is carried on within the municipalities of Nairobi or Mombasa; or (b) twenty-ve per cent of that capital expenditure where that manufacture is carried on elsewhere.

(2A) The amount of investment deduction under sub paragraph (2) commencing on or after the 1st January, 1990, shall be equal to (a) sixty-ve per cent of that capital expenditure where that manufacture is carried on within the municipalities of Nairobi or Mombasa; or (b) fteen per cent of that capital expenditure where that manufacture is carried on elsewhere.

(2B) The amount of investment deduction under subparagraph (2) Rev.

2012] Income Tax CAP.

470 191 shall be equal to the percentage of the capital expenditure applicable in accordance with the following table Where the year of rst use is any Percentage of the Capital year of income or accounting year Expenditure commencing on or after st 1 January, 1995 40% st 1 July, 2000 NIL st 1 January, 2002 15% st 1 January, 2003 30% st 1 January, 2004 Nil st 1 January, 2005 Nil st 1 January, 2006 Nil st 1 January, 2007 Nil st 1 January, 2008 Nil (3) The deduction allowable under subparagraph 2, (2A) or (2B) shall be in addition to any deduction under paragraph 24: Provided that where the person incurring that capital expenditure ceases to be eligible to engage in manufacture under bond within three years of the date on which that manufacture was commenced, an amount equal to the deduction allowed under this Part reduced by any deductions which might have been deductible in respect of that capital expenditure under Part I and Part II if a deduction under this Part had not been allowable, shall be taken into account as a trading receipt in computing the gains and prots of that person for the year of income in which he ceases to be eligible to engage in the manufacture under bond.

(4)(a) Capital expenditure incurred in the construction of a building does not include expenditure incurred on the acquisition of, or of rights in or over, land; (b) building, installation, and new shall have the meaning ascribed to those words in paragraph 24(3)(e) of this Schedule; (c) Manufacture under bond shall have the meaning ascribed to these words in section 2(1) of the Customs and Excise Act.

24B.

(1) Subject to this Schedule, where capital expenditure Capital expenditure is incurred on or after the 1st January, 1992 on the construction of a on buildings and building or on the purchase and installation of machinery by or for an machinery for use in export processing zone enterprise for use in an export processing zone an export processing for the purpose of carrying out the business activities for which that zone.

enterprise was licensed as an export processing zone the enterprise within the rst twenty years starting with the year in which that enterprise rst became exempt from corporation income tax under 192 [Rev.

2012 CAP.

470 Income Tax paragraph 2(e) of the Third Schedule of this Act, a deduction, referred to as an investment deduction, equal to one hundred percent of the capital expenditure may be taken at the discretion of the enterprise against the gains or prots of that enterprise in the year in which the building or machinery is rst used.

(2) During the twenty year period specied in subparagraph (1), paragraphs 24 and 24A shall not apply to an export processing zone enterprise.

(3) Capital expenditure incurred in the construction of building does not include capital expenditure incurred on the acquisition of, or rights in or over land.

Shipping.

25.

Subject to this Schedule, where a resident person carrying on the business of a shipowner incurs capital expenditure to which this Schedule applies (a) on the purchase of a new and hitherto unused power-driven ship of more than 495 tons gross; or (b) on the purchase, and subsequent retting for the purposes of that business, of a used power-driven ship of more than 495 tons, there shall be deducted in computing his gains or prots for the year of income in which the ship is rst used in that business a deduction (referred to as a shipping investment deduction) equal to forty per cent of that capital expenditure, but (a) not more than one shipping investment deduction shall be allowed in respect of the same ship; (b) (Deleted by13 of 1975, s.

2.); (c) where a ship in respect of which a shipping investment deduction has been given, is sold within a period of ve years from the end of the year of income in which the deduction was given, the deduction shall be withdrawn and treated as income of the vendor for the year of income in which the sale takes place.

Sale of buildings 26.

Where capital expenditure is incurred on the construction of a prior to use.

building to which paragraph 24(1)(a), (c),(e) or (f) applies and which is 57 of 2012, s.

24.

sold before it is rst used then the provisions of paragraph 4 shall apply.

Rev.

2012] Income Tax CAP.

470 193 PART VIMISCEllANEOuS PROVISIONS 27.

(1)(a) A reference in this Schedule to the sale of property Apportionment of includes a reference to the sale of that property together with any other consideration for property, and, where property is sold together with other property, sale, exchanges, etc., so much of the net proceeds of the sale of the whole property as the of any property or of Commissioner may determine to be just and reasonable as properly leasehold interests.

attributable to the rst mentioned property shall, for the purposes of this Schedule, be deemed to be the net proceeds of the sale of the rst mentioned property, and references to expenditure incurred on the provision or the purchase of property shall be construed accordingly.

(b) For the purposes of this paragraph all the property which is sold in pursuance of one bargain shall be deemed to be sold together, notwithstanding that separate prices are, or purport to be, agreed for separate items of that property or that there are, or purport to be, separate sales of separate items of that property.

(2) Subparagraph (1) shall, with the necessary adaptations, apply in relation to other sale moneys as they apply in relation to the net proceeds of sales.

(3) This Schedule shall have effect as if a reference therein to the sale of property included a reference to the exchange of property and, in the case of a leasehold interest, also included a reference to the surrender thereof for valuable consideration, and provisions of this Schedule referring to sales shall have effect accordingly with the necessary adaptations and, in particular with the adaptations that references to the net proceeds of sale and to the price shall be taken to include references to the consideration for the exchange or surrender and references to capital sums included in the price shall be taken to include references to so much of the consideration as would have been a capital sum if it had taken the form of a money payment.

28.

(1) Unless the context otherwise requires, references in this Interpretation of Schedule to capital expenditure and capital sums in relation to the certain references to person incurring that expenditure, or paying those sums, do not include expenditure.

any expenditure or sum which is deductible otherwise than under this Schedule for the purpose of ascertaining his total income.

(2) A reference in this Schedule to the date on which expenditure is incurred shall be construed as a reference to the date when the sum in question becomes payable.

29.

(1) Expenditure shall not be regarded for any of the purposes Subsidies.

of this schedule as having been incurred by a person in so far as it has been, or is to be met directly or indirectly by a government or a local authority or by any person, whether in Kenya or elsewhere, other than 194 [Rev.

2012 CAP.

470 Income Tax the rst mentioned person.

(2) In considering whether, for the purpose of this Schedule, expenditure has been met or is to be met directly or indirectly by anyone other than the person incurring the expenditure, there shall be left out of account (a) insurance moneys or other compensation moneys payable in respect of an asset which has been demolished, destroyed or put out of use; and (b) expenditure met, or to be met, by a person, other than a government or a local authority, being expenditure in respect of which, apart from this item, no deduction could be made under subparagraph (3).

(3) Where a person, for the purposes of a business carried on or to be carried on by him or by a tenant of land in which he has an interest, contributes a capital sum (hereinafter referred to as a contribution) to expenditure on the provision of an asset being expenditure which, apart from subparagraph (1), would have been regarded as wholly incurred by another person and in respect of which, apart from that subparagraph, a deduction would have been made under this Schedule, then, subject to this paragraph, such deductions, if any, shall be made to the contributor as would have been made to him if his contribution had been expenditure on the provision, for the purpose of that business, of a similar asset.

(4) Subject to this Schedule, the amount of the deductions and the manner in which they are to be made shall be determined on the following basis (a) the asset shall be deemed to continue at all material times to be in use for the purposes of the business; (b) where the asset is machinery and, when the contribution was made, the business was carried on or was to be carried on by a tenant of land in which the contributor has an interest, the contributor shall be deemed to have let the machinery to the tenant on terms that the burden of the wear and tear thereof falls directly on the contributor.

(5) Where, when the contribution was made, the business for the purposes of which it was made was carried on or was to be carried on by the contributor, then, on a transfer of the business or apart thereof (a) where the transfer is of the whole business, the deductions thereafter shall be made to the transferee; Rev.

2012] Income Tax CAP.

470 195 (b) where the transfer is of part only of the business, item (a) shall have effect with respect to so much of the deduction as the Commissioner may determine is properly referable to the part of the business transferred.

(6) Where, when the contribution was made, the business was carried on or was to be carried on by a tenant of land in which the contributor had an interest, the deduction for a year of income shall be made to the person who is entitled to the interest of the contributor in the land.

30.

If a deduction is made under any Part in respect of property, Prevention of double or in respect of capital expenditure on property, in computing the gains allowances.

or prots of a person for a year of income, then, to the extent to which that deduction has been made, no further deduction shall be made under that Part or any other Part or under any other provision of this Act in respect of, or in respect of capital expenditure on, that property in ascertaining the total income of that person for the same or a previous or subsequent year of income.

31.

The amount of a deduction made under this Schedule may be Increase of increased to such an amount as may be prescribed by the Commissioner deductions.

either generally, or in relation to a particular class of business, or in a particular instance.

31A.

Where a person incurs capital expenditure on the purchase of machinery or on the construction of roads, bridges or similar infrastructure under a concessionairing arrangement, the deduction shall be spread and claimed in equal proportion over the period of the concession: Provided that the period of the concession shall be deemed to commence (a) in the case of machinery, in the year in which the machinery is rst put into use; (b) in the case of a road, bridge or similar infrastructure, in the year it is rst put into use after completion.

31B.

Subject to this Schedule, where a person incurs capital expenditure on the purchase or acquisition of the right to the use of a computer software, there shall be deducted, in computing his gains or prots for the year of income in which the software is rst used and for subsequent years of income, an amount equal to one-fth of that expenditure.

196 [Rev.

2012 CAP.

470 Income Tax Other provisions as 32.

(1) In this Schedule, unless the context otherwise requires to interpretation.

control, in relation to a body corporate, means the power of a person to secure, by means of the holding of shares or the possession of voting power in or in relation to that or another body corporate, or by virtue of powers conferred by the articles of association or other document regulating that or another body corporate, that the affairs of the rst mentioned body corporate are conducted in accordance with the wishes of that person; and in relation to a partnership, means the right to a share of more than one-half of the assets or of more than one-half of the income of the partnership: Provided that in the case of a body corporate, unless otherwise expressly provided for by the articles of association or other documents regulating it, control shall mean the holding of shares or voting power of twenty-ve percent or more.

income includes an amount on which a charge to tax is authorized to be made under this Act; lease includes an agreement for a lease where the term to be covered by the lease has begun and a tenancy but does not include a mortgage; machinery includes ships and plant used in carrying on a business; sale moneys means, in relation to (a) a sale of property, the net proceeds of the sale; (b) the coming to an end of an interest in property, compensation payable in respect of that property; (c) the demolition or destruction of property, the net amount received for the remains of the property, together with insurance or salvage moneys received in respect of the demolition or destruction and other compensation of any description received in respect thereof, in so far as that compensation consists of capital sums.

(2) A reference in this Schedule to any building, machinery, works, asset or farmhouse shall, except where the reference is to the whole of a building, be construed as including a reference to a part thereof.

(3) A reference in this Schedule to the time of a sale shall be construed as a reference to the time of completion or the time when Rev.

2012] Income Tax CAP.

470 197 possession is given, whichever is the earlier.

(4) For the purposes of this Schedule the price which property would have fetched if sold in the open market shall be determined by the Commissioner.

(5) Where the income of an accounting period ending on some day other than the last day of a year of income is taken into account for the purpose of ascertaining total income for a year of income, a reference in this Schedule to a year of income shall be construed as a reference to that accounting period; but where a deduction under this Schedule is related to a year of income and the income of an accounting period is so taken into account then, if that accounting period is more or less than twelve months, the amount of the deduction shall be proportionately increased or decreased, as the case may be.

33.

For the purposes of this Schedule, hotel means a hotel which has been classied as such by the Minister for the time being responsible for matters relating to tourism.

THIRD SCHEDULE (Sections 29, 30, 31, 32, 2 of 1975, s.

5, 33, 34 and 35.) 13 of 1975, s.

2, 7 of 1976, s.

2, RATES OF PERSONAl RElIEFS AND TAx 12 of 1977, s.

5, 8 of 1978, s.

9, hEAD ARESIDENT PERSONAl RElIEF 10 of 1980, s.

5, 6 of 1981, s.

5, 14 of 1982, s.

22, 13 of 1984, s.

22, 1.

Personal Relief 18 of 1984, s.

7, 8 of 1985, s.

16, The amount of the personal relief shall be thirteen thousand nine 10 of 1987, s.

38, hundred and forty-four shillings.

10 of 1988, s.

36, 9 of 1989, s.

23, 2.

Insurance Relief 8 of 1990, s.

76, 10 of 1990, s.

60, 4 of 1993, s.

59, The amount of insurance relief shall be fteen percent of the 13 of 1994, s.

47, amount of premiums paid but shall not exceed sixty thousand shillings 13 of 1995, s.

89, per annum.

8 of 1996, s.

46, 8 of 1997, s.

50, HEAD B-RATES OF TAX 5 of 1998, s.

40, 4 of 1999, s.

41, 1.

The individual rates of tax shall be 9 of 2000, s.

55, 6 of 2001, s.

55, Rate in each shilling 7 of 2002, s.

48, On the rst Shs.

121,968 10% 15 of 2003, s.

41, On the next Shs.

114,912 15% 4 of 2004, s.

61, On the next Shs.

114,912 20% 6 of 2005, s.

36, On the next Shs.

114,912 25% 10 of 2006, s.

31, 9 of 2007, s.

29, 198 [Rev.

2012 CAP.

470 Income Tax 8 of 2008, s.

40, On all income over Shs.

466,704 30% 8 of 2009, s.

30, 10 of 2010, s.

34, 1A.

The wifes employment, wifes professional and wifes self- 4 of 2012, s.

22, employment income rates of tax shall be 57 of 2012, s.

25.

Rate in each shilling Section of On the rst Shs.

121,968 10% Act 30.

On the next Shs.

114,912 15% On the next Shs.

114,912 20% On the next Shs.

114,912 25% On all income over Shs.

466,704 30% 2.

The corporation rate of tax shall be (a) in the case of a resident company Rate in each Twenty Shillings (i) for the year of income 1974 and each subsequent year of income up to and including the year of income 1990.

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9.00 (ii) for the year of income 1990.

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8.50 (iii) for the year of income 1991.

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.8.00 (iv) for the year of income 1992.

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.7.50 (v) for the year of income 1993 upto and including the year of income 1997.

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.7.00 (vi) for the year of income 1998 upto and including 1999.

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.6.50 (vii) for the year of income 2000 and each subsequent year of income.

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.

6.00 Provided that for a resident company with an accounting period ending between the 1st July, 1994 and the 30th June, 1995 the corporation rate of tax shall be increased by one- half shilling in each twenty shillings.

(b) In the case of a non-resident company having a permanent establishment in Kenya Rev.

2012] Income Tax CAP.

470 199 (i) for the year of income 1974 and each subsequent year of income including the year of income 1989.

.

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10.50 (ii) for the year of income 1990.

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10.00 (iii) for the year of income 1991.

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9.50 (iv) for any year of income 1992.

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9.00 (v) for the year of income 1993 upto and including the year of income 1997.

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8.50 (vi) for the year of income 1998 upto and including 1999.

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8.00 (vii) for the year of income 2000 and each subsequent year of income.

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.7.50 Provided that for a non-resident company having a permanent establishment in Kenya with an accounting period ending between the 1st July, 1994 and the 30th June, 1995, the corporation rate of tax shall be increased by one-half shilling in each twenty shillings; (c) in the case of a company newly listed on any securities exchange approved under the Capital Markets Act with at least twenty percent of its issued share capital listed, twenty seven Cap.

485A.

percent for the period of three years commencing immediately after the year of income following the date of such listing; (d) in the case of a company newly listed on any securities exchange approved under the Capital Markets Act with at least thirty percent of its issued share capital listed, twenty Cap.

485A.

ve percent for the period of ve years commencing immediately after the year of income following the date of such listing; (e) in the case of a company newly listed on any securities exchange approved under the Capital Markets Act which has Cap.

485A at least forty percent of its issued share capital listed, twenty percent for the period of ve years commencing immediately 200 [Rev.

2012 CAP.

470 Income Tax after the year of income following the date of such listing; (f) that part of the total income of a company which relates to income derived from the mining of specied minerals where the rate shall be ve shillings and fty cents in respect of each twenty shillings of that part of the total income; but the rate shall be nine shillings in each twenty shillings of that part of the total income from the fth year, and in each subsequent year, after the rst year in which the company is liable to pay corporation tax.

Provided that for purposes of this subparagraph, commercial activities includes trading in, breaking bulk, grading, repacking or relabelling of goods and industrial raw materials 3.

The non-resident tax rates shall be (a) in respect of management or professional fees or training fees, other than management or professional fees or training fees deductible under paragraph 5(2)(g) of the Ninth Schedule, twenty per cent of the gross sum payable: Provided that the rate applicable to citizen of the East African Community partner states in respect of management or professional fees or training fees shall be fteen per cent of the gross sum payable.

(b) in respect of a royalty, twenty per cent of the gross amount payable; (c) (i) in respect of a rent, premium or similar consideration for the use or occupation of immovable property, thirty per cent of the gross amount payable.

(ii) in respect of a rent, premium or similar consideration for the use of property other than immovable property, fteen per cent of the gross amount payable.

(d) in respect of a dividend, ten per cent of the amount payable; Provided that the rate applicable to citizen of the East African Community Partner States in respect of dividend shall be ve percent of the gross sum payable.

(e) (i) in respect of interest arising from a Government bearer bond of at least two years duration and interest and Rev.

2012] Income Tax CAP.

470 201 deemed interest, other than interest which is deductible under paragraph 5(2)( h) of the Ninth Schedule, discount or original issue discount, fteen percent of the gross sum payable; (ii) in respect of interest, arising from a bearer instru- ment other than a Government bearer bond of at least two years duration, twenty-ve per cent of the gross amount payable; (f) in respect of a pension or retirement annuity, ve per cent of the gross amount payable; (g) in respect of an appearance at, or performance in, a place (whether public or private) for the purpose of entertaining, instructing, taking part in a sporting event or otherwise diverting an audience, twenty per cent of the gross amount payable; (h) in respect of an activity by way of supporting, assisting or arranging an appearance or performance mentioned in subparagraph (g), twenty per cent of the gross amount payable; (i) in respect of any management or professional fees deductible under paragraph 5 (2) (g) of the Ninth Schedule, twelve-and- a-half per cent of the gross sum payable; (j) in respect of any interest which is deductible under paragraph 5 (2)(h) of the Ninth Schedule, ten per cent of the gross sum payable; (k) in respect of gains or prots from the business of a ship- owner which is chargeable to tax under section 9 (1) of the Act, two and a half percent of the gross amount received.

(l) in respect of gains and prots from the business of transmitting messages by cable or radio communication, optical bre, television broadcasting, Very Small Aperture Terminal (VSAT), internet and satellite or any other similar method of communication which is chargeable to tax under section 9(2), ve per cent of the gross amount received.

(m) (Deleted by 57 of 2012, s.

25).

(n) in respect of the amount or value of the consideration from sale of property or shares, in respect of oil companies, mining 202 [Rev.

2012 CAP.

470 Income Tax companies or mineral prospecting companies, twenty percent of the gross amount payable.

4.

(Deleted by 6 of 1994, s.

47.) 5.

The resident withholding tax rates shall be (a) in respect of a dividend, ten per cent of the amount payable; (b) in respect of interest, discount or original issue discount arising from (i) bearer instrument other than a Government bearer bond of at least two years duration, twenty-ve percent; (ii) Government Bearer Bond of at least two years dura- tion and other sources, fteen percent; of the gross amount payable.

(iii) bearer bonds with a maturity of ten years and above, ten percent of the gross amount payable.

(c) in respect of a commission or fee, paid or credited by an insurance company to any person for the provision, whether directly or indirectly, of an insurance cover to any or group of persons, ve per cent of the gross amount payable to brokers, and ten per cent of the gross amount payable to all others; (d) (i) in respect of a payment of a pension or any withdrawal made after the expiry of fteen years from the date of joining the fund, or on the attainment of the age of fty years, or upon earlier retirement on the grounds of ill health or inrmity of body and mind, from a registered pension fund, registered provident fund, the National Social Security Fund or a registered individual retirement fund, in excess of the tax free amounts specied under section 8 (4) and 8 (5) in any one year 10% on the rst Shs.

400,000 15% on the next Shs.

400,000 20% on the next Shs.

400,000 25% on the next Shs.

400,000 30% on any amount over Shs.

1,600,000 of the amount in excess of the tax free amount; Rev.

2012] Income Tax CAP.

470 203 provided that the tax so deducted shall be nal.

(ii) in respect of a withdrawal before the expiry of fteen years from the date of joining the fund, made from a registered pension fund, registered provident fund, the National Social Security Fund or a registered individual retirement fund in excess of the tax free amounts specied under section 8 (4) and 8 (5) in any one year 10% on the rst Shs.

121,968 15% on the next Shs.

114,912 20% on the next Shs.

114,912 25% on the next Shs.

114,912 30% on any amount over Shs.

466,704 of the amount in excess of the tax free amount ; (iii) in respect of surplus funds withdrawn by or refunded to an employer in respect of registered pension or registered provident funds, thirty percent of the gross sum payable; (e) in respect of a qualifying dividend, ve per cent of the amount payable; (f) (i) in respect of management or professional fee or training fees, other than contractual fee; the aggregate value of which is twenty-four thousand shillings in a month or more, ten per cent of the gross amount payable; (ii) in respect of contractual fee the aggregate value of which is twenty-four thousand shillings in a month or more, three per cent of the gross amount payable.

(g) in respect of a royalty, ve per cent of the gross amount payable; (h) in respect of qualifying interest: (i) ten percent of the gross amount payable in the case of housing bonds; and (ii) twenty percent of the gross amount payable in the case of bearer instruments; and (iii) fteen percent of the gross amount payable in any other case.

(i) (Deleted by 10 of 2010, s.

34.).

204 [Rev.

2012 CAP.

470 Income Tax (j) (Deleted by 57 of 2012, s.

25) (k) in respect of the amount or value of the consideration from sale of property or shares in respect of oil companies, mining companies or mineral prospecting companies, ten percent of the gross amount payable: Provided that the tax so deducted shall be nal.

6.

(1) The rate of deduction for a transaction chargeable to withholding tax under subsection (3A) of section 35 shall be three percent of the gross amount of the aggregate consideration of the transaction.

(2) The gains or prots arising from the transfer of property under the Eighth Schedule shall be taxed at a rate of ten per cent.

7.

The rate of presumptive income tax in respect of agricultural produce under subsection (1) of section 17A shall be two per cent of the gross amount of payment or the gross value of export.

8.

The rate of advance tax under section 12A shall be (a) for vans, pick-ups, trucks, prime movers, trailers and lorries; one thousand ve hundred shillings per ton of load capacity per year or two thousand four hundred shillings per year, whichever is the higher; Provided that advance tax shall not be imposed on tractors or trailers used for agricultural purposes.

(b) for saloons, station-wagons, mini-buses, buses and coaches; sixty shillings per passenger capacity per month or two thousand four hundred shillings per year, whichever is the higher.

(c) (Deleted by 10 of 2010, s.

34.).

9.

The rate of tax in respect of turnover tax shall be three per cent of the gross receipts of the business of a taxable person under section 12C.

FOURTH SCHEDULE (Sections 15 and 35) Financial Institutions A bank or a nancial institution licensed under the Banking Act.

Rev.

2012] Income Tax CAP.

470 205 Cap.

488.

An insurance company licensed under the Insurance Act.

Cap.

487.

A building society registered under the Building Societies Act.

Cap.

489.

Act.

The National Housing Corporation established under the Housing Cap.

117.

Act.

A co-operative society registered under the Co-operative Societies Cap.

490.

The Kenya Post Ofce Savings Bank established by the Kenya Post Ofce Savings Bank Act.

Cap.

493B The Agricultural Finance Corporation established by the Agricultural Finance Corporation Act.

Cap.

323.

A person licensed under Part VII of the Hire Purchase Act.

Cap.

507 2) FIFTH SCHEDULE (Section 2 of 1975, s.

5 Scheduled Professions And Scheduled Qualications 10 of 1988, s.

37.

Profession Qualications 1.

Medical Any person who is registered as a medical practitioner under the Cap.

253.

Medical Practitioners and Dentists Act.

2.

Dental Any person who is registered Cap.

253.

as a dentist under the Medical Practitioners and Dentists Act.

206 [Rev.

2012 CAP.

470 Income Tax 3.

Legal Any person who is an advocate Cap.

16.

within the meaning of the Advocates Act.

4.

Surveyors Any person licensed as a surveyor Cap.

299.

(a) Land Surveyor under the Survey Act.

(b) Surveyor Any person who is a fellow or professional associate of the Royal Institution of Chartered Surveyors.

5.

Architects or Any person who is registered as Quantity Surveyors an architect or quantity surveyor Cap.

525.

under the Architects and Quantity Surveyors Act.

6.

Veterinary Surgeons Any person who is registered or licensed as a veterinary surgeon Cap.

366.

under the Veterinary Surgeons Act.

7.

Engineers Any person who is registered Cap.

530.

under the Engineers Registration Act.

8.

Accountants Any person who is registered as an Cap.

531.

accountant under the Accountants Act.

9.

Certied Public A person who is registered under Cap.534.

Secretaries the Secretaries Certied Public Secretaries of Kenya Act.

SIXTH SCHEDULE (Section.

133) Transitional Provisions 1.

For the purposes of the application of the Management Act under subsection (4) of section 133 of this Act (a) references in the Management Act to the Authority shall be read as references to the Minister; (b) references in the Management Act to the Commissioner General and to other ofcers shall be read as references to the Commissioner and equivalent ofcers appointed under this Act; Rev.

2012] Income Tax CAP.

470 207 (c) the local committees and the tribunal appointed for Kenya under the Management Act shall continue in being for the purpose of that application; (d) rules made under the Management Act shall, to the extent that they refer to Kenya, continue to have full force and effect.

2.

Legal proceedings commenced prior to 1st January, 1974, under the Management Act shall not be abated by reason only of the operation of subsection (2) of Section 133 of this Act, and where the Commissioner-General was a party to those proceedings the Commissioner shall be substituted as a party in place of the Commissioner-General.

3.

(1) Subject to this Schedule, the continuity of the operation of the law relating to income tax shall not be affected by the substitution of this Act for the Management Act and accordingly (a) so much of an enactment or document as refers, whether expressly or by implication, to or to things done or to be done under or for the purposes of a provision of this Act shall, if and so far as the nature of the subject matter of the enactment or document permits, be construed as including in relation to the times, years or periods, circumstances or purposes in relation to which the corresponding provision in the Management Act has or had effect, reference to , or, as the case may be, to things done or to be done under or for the purposes of, that corresponding provision; (b) so much of an enactment or document as refers, whether expressly or by implication, to or to things done or to be done under or for the purposes of, any provision of the Management Act shall, if and so far as the nature of the subject matter of the enactment or document permits, be construed as including in relation to the times, years or periods, circumstances or purposes in relation to which the corresponding provision of this Act has effect, a reference to, or, as the case may be, to things done or deemed to be done or to be done under or for the purposes of, that corresponding provision.

(2) References in this paragraph to things done or to be done under a provision include in particular, and without prejudice to the generality of the references, references to charges to tax, deductions, personal allowances reliefs, repayments, assessments, notices, or returns made, granted, served or furnished, or to be made, granted, served or furnished, under that provision.

208 [Rev.

2012 CAP.

470 Income Tax 4.

Where the ascertainment of the total income of a person for the year of income 1973 results in a decit, the total income of that person for the year of income 1974 shall be computed as if section 13(4) of the Management Act continued to apply to that year of income.

5.

Where a farmer has elected under section 16 of the Management Act not to take into account the values of livestock and produce at the beginning and end of each year of income for the purposes of ascertaining his income therefrom for each year of income, then that election shall be deemed to be an election made in accordance with section 17 of this Act.

6.

Where, immediately prior to the commencement of this Act, there is for the purpose of the Second Schedule to the Management Act in relation to a person a residue of expenditure or expenditure still unallowed, then that residue of expenditure or expenditure still unallowed as the case may be, shall, in relation to that person, be the residue of expenditure or expenditure still unallowed, as the case may be, on the commencement of this Act for the purposes of the Second Schedule to this Act.

7.

Where under this Act (a) a sum is deemed to be income of, or in respect of, a year of income prior to the commencement of this Act; or (b) (Deleted by 2 of 1975, s.

5.); (c) the Commissioner may divide an amount into the portions and a portion is taken into account in computing the gains or prots or in ascertaining total income for a year of income prior to the commencement of this Act, then an assessment in relation thereto for that year of income may be made as if that sum or portion, as the case may be, had been income charged to tax under the Management Act.

8.

Where under the Management Act the income of a beneciary under a trust or settlement has been charged to tax for a year of income on the basis of the amount receivable under that trust or settlement in that year of income, nothing in this Act shall operate to charge that beneciary on income received after the commencement of this Act which has been charged on him under the Management Act.

9.

Arrangements specied in notices issued under section 55 of the Rev.

2012] Income Tax CAP.

470 209 Management Act shall continue to have effect as if they had been made under section 41 of this Act.

10.

Local committees and members thereof appointed for areas under section 97 of the Management Act shall continue to act according to the terms of the notices making those appointments as if those local committees and the members thereof had been established and appointed by notices under section 82 of this Act.

11.

Where, after the commencement of this Act, a payment is made in respect of the refund or return of contributions made or premiums paid prior to the commencement of this Act, under an approved pension scheme, approved pension fund, approved annuity contract, approved trust scheme or approved provident fund mentioned in subsection (1), (2), (3) and (4) of section 8 of the Management Act, that payment shall in the manner and to the extent provided in those subsections, and in section 3(c), of the Management Act, be deemed to be income charged to tax under section 3(2)(e) of this Act: Provided that (i) references in section 8(2) to any year of income shall be construed as meaning any year of income prior to the commencement of this Act; and (ii) references in section 8(2) to the year of income and the relevant year of income shall be construed as references to the year ending 31st December, 1974; and (iii) in section 8(2) the proviso thereto shall be read and construed as if the following words were deleted (a) which expired earlier than the year of income (hereinafter referred to as the relevant year of income) prior to the year of income (i) in which it was received; or (ii) in the case of a policy, in which the policy was assigned or transferred; or (iii) in which the employee left the service of the employer; or (iv) in which the person died, whichever is the earlier; and (b) in excess of one year of the period; 210 [Rev.

2012 CAP.

470 Income Tax (iv) section 8(3) and (4) shall apply only in respect of contri- butions made, or in case of paragraph (a) of subsection (4) thereof in respect of a pension right accrued, prior to the commencement of this Act.

SEVENTH SCHEDULE (Repealed by 8 of 1978, s.

9) 13 of 1975, s.

2, EIGHTH SCHEDULE Sections 3(2)(f) and 15(3)(f)) 7 of 1976, s.

2, Part IAccrual and Computation of Gains from Property other 8 of 1978, s.

9, than Investment Shares Transferred by Individuals 6 of 1981, s.

5, 14 of 1982, s.

23, 8 of 1985, s.

18.

Interpretation.

1.

(1) In this Part, unless the context otherwise requires adjusted cost has the meaning assigned thereto in paragraph 8; company includes (a) a members club deemed under section 21(1) to be carrying on a business; (b) a trade association that elects under section 21(2) to be deemed to carry on a business; consideration means consideration in money or moneys worth; individual includes more than one individual or an unincorporated association or body of individuals including trustees and partners; land includes (a) buildings on land and anything attached to land or permanently fastened to anything attached to land (whether on or below the surface); (b) standing timber, trees, crops and other vegetation growing on land; and Rev.

2012] Income Tax CAP.

470 211 (c) land covered by water; marketable security includes a security capable of being sold and stock as dened in section 2 of the Stamp Duty Act; Cap.

480.

property (a) in the case of a company has the meaning assigned thereto in the Interpretation and General Provisions Act, and includes Cap.

2.

property acquired or held for investment purposes but does include a road vehicle; (b) in the case of an individual means (i) land situated in Kenya and any right or interest in or over that land, and (ii) a marketable security situated in Kenya, other than an investment share as dened in Part II of this Schedule; transfer has the meaning assigned thereto in paragraph 6; transfer value has the meaning assigned thereto in paragraph 7.

(2) For the purpose of this Schedule (a) a reference to a transfer of property includes a reference to a part transfer of property; and (b) there is a part transfer of property where, on a person making a transfer, any description of property derived from the transferred property remains undisposed of.

(3) For the purposes of this Schedule two persons are related persons if (a) either person participates directly or indirectly in the management, control or capital of the business of the other; o (b) a third person participates directly or indirectly in the management, control or capital of the business of both.

(4) For the purposes of subparagraph (3) a reference to person includes (a) in the case of an individual, a reference to a relative (as dened in section 26(5)) of that person; and 212 [Rev.

2012 CAP.

470 Income Tax (b) a reference to a company.

(5) For the purposes of this Schedule (a) shares or securities being marketable securities issued by a municipal or a Government authority, or by a body created by that authority, are situated in the country of that authority; and (b) subject to paragraph (a), shares or securities (being marketable securities) are situated where they are registered and, if registered in more than one register, where the principal register is situated.

Taxation of gains.

2.

Subject to this Schedule, the income in respect of which tax is chargeable under section 3(2)(f) is the whole of a gain which accrues (a) to a company on or after the 1st January, 1975; or (b) to an individual on or after the 13th June, 1975, on the transfer on or before the 13th June, 1985, of property situated in Kenya, whether or not the property was acquired, in the case of a company before the 1st January, 1975, and in the case of an individual before the 13th June, 1975.

Income not 3.

(1) Income is not chargeable to tax under section 3(2)(f) chargeable.

where, and to the extent that, it is chargeable to tax under any other provision of this Act (2) The gain accruing to a company on a transfer of machinery classied in paragraph 7 of the Second Schedule is not chargeable to tax under section 3(2)(f) Computation of 4.

(1) The gain which accrues to a person on the transfer of gains.

property is the amount by which the transfer value of the property exceeds the adjusted cost of the property.

(2) Where, in computing the gain accruing to a person on the transfer of property, the adjusted cost of the property exceeds the transfer value of the property, the amount of the excess is the loss realized by the person on the transfer of the property.

(3) A gain or loss realized by a person on the transfer of property shall be deemed to be realized by the person at the time of the transfer, whether or not the consideration is payable by installments but a payment by way of interest on a part of the consideration not immediately payable shall not be treated as part of the transfer value of the property.

Rev.

2012] Income Tax CAP.

470 213 (4) Debts incurred on the transfer of property which the Commissioner considers to have become bad shall be deemed to be a loss for the purposes of section 15(3)(f) and those provisions shall apply accordingly.

(5) Section 15(2)(e) does not apply in relation to a loss realized by a person on the transfer of property.

5.

(1) In relation to property held by a person as nominee for Dealings by another person or as trustee for a person absolutely entitled as against nominees, trustees the trustee (or for two or more persons who are so entitled in possession, and liquidators, and whether as joint tenants or tenants in common), or as liquidator for for the enforcement a company, this Schedule shall apply as if the property were vested of securities.

in, and the acts of the nominee, trustee or liquidator in relation to the property were the acts of the person or persons for whom the person is nominee, trustee or liquidator (transfers between the person or persons and the nominee, trustee or liquidator being disregarded accordingly).

(2) Where a person entitled to property by way of security or to the benet of a charge or encumbrance on property, deals with the property for the purpose of enforcing or giving effect to the security, charge or encumbrance, his dealings with it shall be treated as if they were done through him as nominee by the person entitled to the property subject to the security, charge or encumbrance, and this subparagraph shall apply to the dealings of a person appointed to enforce or give effect to the security, charge or encumbrance as receiver and manager as it applies to the dealings of the person so entitled.

6.

(1) Subject to this Schedule there is a transfer of property for Meaning of transfer.

the purposes of this Schedule (a) where property is sold, exchanged, conveyed or otherwise disposed of in any manner whatever (including by way of gift), whether or not for consideration; or (b) on the occasion of the loss, destruction or extinction of property whether or not a sum by way of compensation or otherwise, or under a policy of insurance, is received in respect of the loss, destruction or extinction of the property unless that sum is utilized to reinstate the property in essentially the same form and in the same place within one year of the loss, destruction or extinction of the property or within a longer period of the time approved by the Commissioner; or (c) on the abandonment, surrender, cancellation or forfeiture 214 [Rev.

2012 CAP.

470 Income Tax of, or the expiration of substantially all rights to, property, including the surrender of shares or debentures on the dissolution of a company.

(2) There is no transfer of property for the purposes of this Schedule (a) in the case of the transfer of property for the purpose only of securing a debt or a loan, or on a transfer by a creditor for the purpose only of returning property used as a security for a debt or a loan; (b) in the case of the issuance by a company of its own shares or debentures; (c) by the vesting in the personal representative of a deceased person by operation of law of the property of that deceased person; (d) by the transfer by a personal representative of property to a person as legatee in the course of the administration of the estate of a deceased person; and legatee includes a person taking under a devise or other testamentary disposition or an intestacy or partial intestacy whether her takes benecially or as a trustee; (e) by the vesting in the liquidator by an order of a court of the Cap.

486.

property of a company under section 240 of the Companies Act; (f) by the vesting in the ofcial receiver or other trustee in Cap.

53.

bankruptcy of the property of a bankrupt under section 57 of the Bankruptcy Act; or (g) by the transfer by a trustee of property, which is shown to the satisfaction of the Commissioner to be subject to a trust, to a beneciary on his becoming absolutely entitled thereto.

Transfer value.

7.

(1) Subject to this Schedule, the transfer value of property shall be computed by reference to those of the following amounts (if any) as are appropriate having regard to the manner of the transfer, namely (a) the amount of or the value of the consideration for the transfer of the property; (b) sums received in return for the abandonment, forfeiture or surrender of the property; Rev.

2012] Income Tax CAP.

470 215 (c) sums received as consideration for the use of exploitation of the property; (d) sums received by way of compensation for damage or injury to the property or for the loss of the property; (e) sums received under a policy of insurance in respect of damage or injury to, or the loss or destruction of, the property; (f) an amount by which the liability of a person to another person entitled to property by way of security or to the benet of a charge or encumbrance is reduced as a result of dealings with the property for the purposes of enforcing or giving effect to the security, charge or encumbrance, together with an amount received by the person out of the proceeds of those dealings.

(2) Subject to this Schedule, for the purpose of computing the transfer value of property there shall be deducted the incidental costs to the transferor of making the transfer.

(3) In the case where no amount is ascertainable under this Schedule as the transfer value of property the transfer value of the property shall be deemed to be nil.

8.

(1) Subject to this Schedule, the adjusted cost of property is Adjusted cost.

(a) the amount of or value of the consideration for the acquisition or construction of the property; (b) the amount of expenditure wholly and exclusively incurred on the property at any time after its acquisition by or on behalf of the transferor for the purpose of enhancing or preserving the value of the property at the time of the transfer; (c) the amount of expenditure wholly and exclusively incurred at any time after the acquisition of the property by the transferor establishing, preserving or defending the title to, or a right over, the property, and (d) the incidental costs to the transferor of acquiring the property.

(2) For the purpose of computing the adjusted cost of property, an amount computed shall be reduced by such amounts as have been allowed as deduction under section 15(2).

(3) Where a company issues to its shareholders shares 216 [Rev.

2012 CAP.

470 Income Tax (a) that do not constitute a dividend under section 7(1)(d) or (e), the cost of the shares (i) shall be the sum paid for the shares; or (ii) if no sum is paid for the shares, shall be deemed to be nil, and the shareholder shall allocate, in the manner prescribed, the cost of his existing shares between the old shares and the new shares; or (b) that constitute, wholly or partly, a dividend under either of those paragraphs, the amount which constitutes a dividend shall be treated as part of the cost of the shares, and the shareholder shall allocate, in the manner prescribed, the cost of the existing shares between the old shares and the new shares.

(4) Where there is a part transfer of property the adjusted cost of the property shall be allocated to the part transferred in accordance with a method approved by the Commissioner.

(5) The Commissioner may make rules for the purposes of subparagraph (3) prescribing the manner of allocation to be prescribed under that subparagraph Market value.

9.

(1) Where property is acquired or transferred (a) otherwise than by way of a bargain made at arms length; (b) by way of a gift in whole or in part; (c) for a consideration that cannot be valued; or (d) as the result of a transaction between persons who are related, then, for the purposes of (i) paragraph 7, the amount of the consideration for the transfer of the property shall be deemed to be equal to the market value of the property at the time of the transfer; and (ii) paragraph 8, the amount of the consideration for the acquisition of the property shall be deemed to be equal to the market value of the property at the time of the acquisition or to the amount of consideration used in computing stamp duty payable on the transfer by which Rev.

2012] Income Tax CAP.

470 217 the property was acquired, whichever is the lesser.

(2) Property is acquired or transferred by way of a bargain at arms length only if the consideration is determined as between an independent willing buyer and an independent willing seller.

(3) The Commissioner may determine the market value of property, and a reference in this paragraph to the market value of property is a reference to the price which the property would fetch if sold in the open market as so determined.

10.For the purposes of paragraph 7(2) and 8(1)(d), the Incidental costs.

incidental costs of the acquisition or transfer of property shall consist of expenditure wholly and exclusively incurred by the person acquiring the property or the transferor for the purposes of the acquisition or transfer, as the case may be, of the property being (a) fees, commission or remuneration paid for the professional services of a surveyor, valuer, accountant, agent or legal adviser; (b) costs of transfer (including stamp duty); (c) in the case of an acquisition, the cost of acquisition (including mortgage costs) and the cost of advertising to nd a seller, and costs reasonably incurred for the purposes of this Schedule in making a valuation or in ascertaining market value; (d) in the case of a transfer, the cost of advertising to nd a buyer and costs reasonably incurred for the purposes of this Schedule in making a valuation or in ascertaining market value; and (e) any other costs which the Commissioner may allow as being just and reasonable.

11.

No amount shall be allowed (a) under paragraph 7(2) as part of the incidental costs of making a transfer; or (b) under paragraph 8 as part of the adjusted cost of property, if that amount has been or is otherwise allowed as a deduction in computing gains or prots chargeable to tax under section 3(2)(a).

218 [Rev.

2012 CAP.

470 Income Tax Transfer or 12.

Where property is transferred or acquired together with acquisition of other property in pursuance of one bargain, then, notwithstanding property with other that separate prices are, or purport to be, agreed for separate items property.

of that property, the Commissioner may determine what part of the adjusted cost or the transfer value is reasonably attributable to each of the properties involved, which determination shall be binding on both the transferor and the transferee of the property.

Exemption.

13.

(1) No gain or loss shall be included in the computation of income under section 3(2)(f) in the case of a transfer of property in exchange for other property that is necessitated by, and takes place pursuant to, a transaction involving the incorporation, recapitalization, acquisition, amalgamation, separation, dissolution or similar restructuring of corporate identity involving one or more companies (to the extent otherwise permitted by law) found by the Minister in his discretion to be in the public interest; but following that exchange, the cost to the transferor of the property acquired by him shall be the cost of the property transferred, except that the cost to a company of property received by it in exchange for the issue of its own shares or debenture shall be the cost to the issuee of the property received.

(2) As a condition of making his nding that any one of the transactions referred to in subparagraph (1) is in the public interest the Minister may require one or more of the parties to the transaction to agree, for the purposes of this Act, as to the treatment of a charge, deduction or other item, present or future involved in or arising out of the transaction, including, without limitation, the treatment of property received as dividend, the charge of again or loss to income, the cost or valuation of property, the allocation of cost or value between different properties, and the accounting treatment of any item.

(3) An agreement made pursuant to subparagraph (2) shall, for the purposes of this Act, be binding on the party and its successors in title, as to matters covered by the agreement.

PART IIACCRuAl AND COMPuTATION OF GAINS FROM INVESTMENT ShARES Interpretation.

14.

In this Part of this Schedule adjusted cost means (a) in the case of investment shares acquired before 13th June.1975, the market price at which the shares could have been purchased in a transaction between an independent willing buyer and an independent willing seller on the Nairobi Stock Exchange immediately prior to the close Rev.

2012] Income Tax CAP.

470 219 of business on 12th June, 1975; but if the transferor of the investment shares can prove to the satisfaction of the Commissioner that he actually paid more for the shares than that market price, the actual cost to the transferor of the shares may be substituted for that market price; and (b) in the case of investment shares acquired on or after 13th June, 1975, the amount or value of the consideration for the acquisition of the shares; consideration means consideration in money or moneys worth; investment shares means shares of companies, municipal or Government authorities or a body created by those authorities, that are listed and traded on the Nairobi Stock Exchange; transfer value means the amount of value of the consideration for the transfer of investment shares (less any amount which would be deductible under paragraph 10 of Part I of this Schedule if the gains were being computed under that Part).

15.The gain subject to tax under this Part is the amount by Computation of which the transfer value of investment shares transferred by a person gains.

who is an individual exceeds the adjusted cost of those shares.

16.The gain ascertained under paragraph 15 is subject to a Deduction of tax.

deduction of income tax at the rate of seven and a half per cent of that gain.

16A.Where in computing the gain accruing to a person on the Losses.

transfer of investment shares, it is found that the adjusted cost of the shares exceeds the transfer value of those shares the amount of the excess is the loss realized by the person on the transfer of the investment shares.

17.The provisions of section 39 apply to tax deducted under Set-off of tax.

paragraph 16 18.A stockbroker who conducts the transfer of investment shares Remittance of tax on behalf of a transferor shall collect and remit tax to the Commissioner in accordance with section 35 (5).

19.The remittance of money by a stockbroker under paragraph Failure to collect and remit.

18 shall be a full and nal discharge to the stockbroker as against all persons from liability in respect of that money.

20.

A stockbroker who fails to collect and remit as required under paragraph 18, the amount of income tax out of the proceeds (over which he has control) accruing as a result of the transfer of investment 220 [Rev.

2012 CAP.

470 Income Tax shares is jointly and severally liable with the transferor of the shares for payment of the tax.

Exemption.

21.

(1) Where the transferor of investment shares is an unincorporated association or body of individuals of a public character which has been exempted from income tax under paragraph 10 of the First Schedule no deduction of income tax shall be made under this Part of this Schedule.

(2) Gains from a transfer of investment shares for or in connection with a pension fund, trust scheme, or provident fund registered with the Commissioner shall not be subject to deduction of income tax under this Part of this Schedule.

PART IIIREDuCTION OF ChARGEAblE GAINS IN RESPECT OF PROPERTy ACquIRED bEFORE 1ST jANuARy, 1975, AND TRANSFERRED bEFORE IST jANuARy, 1985 Interpretation.

22.

(1) In this Part of this Schedule property means property as dened in Part I of this Schedule; transfer has the meaning assigned thereto in paragraph 6 of this Schedule.

(2) Property shall for the purposes of this part of this Schedule be deemed to have been acquired by the taxpayer on the date on which it passed or was conveyed into his name or into the name of another person for his absolute benet and to have been transferred by the taxpayer on the date on which there was a transfer of the property by the taxpayer.

Application.

23.

The provisions of this Part of this Schedule shall apply only to property acquired before 1st January, 1975, which is also transferred before 1st January, 1985.

Amounts represented 24.In paragraph 25 by A and B in reduction formula.

A is (a) in respect of property acquired before 1st January, 1955, the number 1955; or (b) in respect of property acquired on or after 1st January, 1955, but before 1st January, 1975.

the number given by the year of acquisition of the property.

Rev.

2012] Income Tax CAP.

470 221 B is the number given by the year of transfer of property transferred on or after 1st January, 1975.

25.

Gains chargeable to tax under section 3 (2) (f) in respect of Reduction formula.

property acquired before 1st January, 1975, and transferred before 1st January, 1985, shall be reduced by the percentage given by the formula 1975A _x 100 B 954 NINTH SCHEDULE (ss.

4(f), 15(2) and 18(16)) 18 of 1984, s.

8, 10 of 2010, s.

35.

TAxATION OF PETROlEuM COMPANIES PART IINTERPRETATION 1.

In this Schedule, unless the context otherwise requires Interpretation.

afliate means a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, another person; control has the meaning ascribed to it in paragraph 32 of the Second Schedule; crude oil means (a) all hydrocarbons regardless of gravity which are produced at the wellhead in liquid state at atmospheric conditions of temperature and pressure; (b) asphalt and ozokerites; and (c) the liquid hydrocarbons known as distillate or condensate obtained from natural gas by condensation or extraction; intangible drilling costs means expenditure that has no salvage value, including expenditure on labour, fuel, repairs, maintenance, hauling, mobilization and demobilization and supplies and materials, other than supplies and materials for well casings or other well xtures, which is for all incidental to drilling, cleaning, deepening, completing or abandoning wells and is incurred in respect of 222 [Rev.

2012 CAP.

470 Income Tax (a) the determination of well locations, geological and geophysical studies, and topographical and geographical surveys preparatory to drilling; (b) the drilling, shooting, testing and cleaning of wells; and (c) the clearing, draining and leveling of land, road-building and the laying of foundations; natural gas means hydrocarbons that are in a gaseous phase at atmospheric conditions of temperature and pressure, including wet mineral gas, dry mineral gas, casinghead gas and residue gas remaining after the extraction or separation of liquid hydrocarbons from wet gas, and non-hydrocarbon gas produced in association with liquid or gaseous hydrocarbons; petroleum means mineral oil and includes crude oil, natural gas and hydrocarbons produced or capable of being produced from oil shales and tar sands; petroleum agreement means an agreement, contract or other Cap.

308.

arrangement between the Government and a petroleum company entered into under the Petroleum (Exploration and Production) Act; petroleum company means a corporate body that carries out, in addition to any other activities, operations under a petroleum agreement entered into under the Petroleum (Exploration and Production) Act; petroleum service subcontractor means a non-resident person who provides services in Kenya to a petroleum company; production means the quantity of petroleum produced, saved and not used in the operation to which a petroleum company is entitled under a petroleum agreement; production expenditure means the day-to-day expenditure on the operations of a petroleum company, but does not include the other costs deductible under paragraph 5(2); qualifying expenditure means capital expenditure, other than intangible drilling costs, incurred in the operations of a petroleum company on (a) plant, machinery or xtures in Kenya, but where the expenditure is of the kind referred to in paragraph 15 of the Second Schedule, the provisions of that paragraph shall Rev.

2012] Income Tax CAP.

470 223 apply; (b) pipelines and storage tanks in Kenya and installation thereof: (c) the erection of rigs and tankage assembly in Kenya; (d) the construction of industrial buildings in Kenya, as dened in paragraph 5 of the Second Schedule, and structures of works of a permanent nature, but excluding in use as a retail shop, showroom, ofce or dwelling house, and the provisions of paragraph 5(4) of the Second Schedule, where part of the use is excluded, shall apply; (e) subject to paragraph 7(5), the acquisition of, or of rights in or over, petroleum deposits in Kenya, and (f) searching for discovering and testing petroleum deposits in Kenya, or gaining access thereto; well means an opening in the ground or seabed, other than a seismic hole, through which petroleum may be obtained, or which is made for exploration purposes or for the injection of a uid into an underground deposit.

PART IITAxATION OF PETROlEuM COMPANIES 2.

(1) In determining the gains or prots of a petroleum company Determination of for a year of income for the purposes of this Act there shall be brought income.

into account the value of the production to which a petroleum company is entitled under a petroleum agreement in that year of income.

(2) For the purposes of subparagraph (1), the value of production shall be the total of (a) the price receivable for that production disposed of by a petroleum company in sales at arms length; and (b) the market value, calculated in accordance with paragraph 3 of production not disposed of by a petroleum company in sales at arms length.

3.

(1) For the purposes of this Schedule, a sale of petroleum Sales of Petroleum at is a sale at arms length if the following conditions are satised arms length (a) the price is the sole consideration for the sale; (b) the terms of the sale are not affected by any commercial relationship, other than that created by the contract of sale 224 [Rev.

2012 CAP.

470 Income Tax itself, between the seller or an afliate and the buyer or an afliate; and (c) the seller or an afliate do not have, directly or indirectly, an interest in the subsequent resale or disposal of the petroleum or any product derived therefrom.

(2) For the purposes of this Schedule, the market value of petroleum shall be determined in accordance with the petroleum agreement entered into with the petroleum company but where the terms of the petroleum agreement do not in any case provide a valuation, the market value shall be (a) where petroleum is disposed of to third parties at arms length, the amount actually receivable for that sale, at the FOB point of export, or at the point that title and risk pass to the buyer; (b) in any other case (i) if there have been sales to third parties at arms length during the current calendar quarter, the weighted average per unit price paid in those sales, at the FOB point of export, or at the point that title and risk pass to the buyer, adjusted for quality, grade and gravity, and any special circumstances; (ii) if there have been no sales to third parties at arms length during the current calendar quarter, the weighted average per unit price at the FOB point of export, or at the point that title and risk pass to the buyer, paid elsewhere in arms length sales of petroleum of a similar quality, grade and quantity, adjusted for any special circumstances of those sales.

Disposal of 4.

Where a person disposes of petroleum and, for the purposes petroleum.

of ascertaining the gains or prots of that person, the market value of the petroleum is calculated in accordance with paragraph 3, the consideration for the acquisition of that petroleum, for the purposes of ascertaining the gains, prots or losses of the person acquiring that petroleum, shall be that market value.

Allowable deductions.

5.(1) For the purposes of ascertaining the gains or prots for a petroleum company for a year of income, there shall be deducted the expenditure referred to in subparagraph (2) incurred in that year, but this shall not prevent other deductions authorized by this Act, and where an item of expenditure is specically deductible under a provision of this Schedule, that item shall not be deductible under another provision of this Act.

Rev.

2012] Income Tax CAP.

470 225 (2) For the purposes of subparagraph (1), there shall be deducted (a) intangible drilling costs; (b) geological and geophysical costs; (c) payments to the Government, or any agency thereof, pursuant to the provisions of the petroleum agreement entered into with the petroleum company; (d) production expenditure; (e) executive and general administrative expenses wholly and exclusively incurred in Kenya by a petroleum company; (f) where a non-resident petroleum company operates in Kenya through a permanent establishment in Kenya, only those reasonable executive and general administrative expenses incurred outside Kenya by that person, including management or professional fees, but limited to the amount that is attributable to the permanent establishment in Kenya and is fairly and reasonably allocated thereto; (g) management or professional fees, including those paid to persons outside Kenya limited to the amount that is attributable to the petroleum company and is fairly and reasonably payable thereby; and (h) interest paid, including interest paid by a non-resident petroleum company and fairly and reasonably allocated to a permanent establishment maintained in Kenya by that company, but no interest paid shall be deductible unless (i) the payment does not exceed the amount that would have been payable on a loan concluded at arms length where the loan, repayment thereof, and the interest payable con- stitute the only consideration for the making of the loan; (ii) the loan, in respect of which interest is paid, is applied for operations by the petroleum company in Kenya, but where only part of the loan is applied in accordance with this paragraph only the interest payable in respect of that part shall be deductible; (iii) tax on interest paid has been deducted and paid to the Commissioner under section 35.

(3) Where expenditure is incurred on an asset representing 226 [Rev.

2012 CAP.

470 Income Tax qualifying expenditure, there shall be made, in ascertaining the gain or prots for the year of income in which that asset is rst brought into use in Kenya, or in which production commences, whichever is the later, and the four following years of income, a deduction equal to one-fty of the expenditure.

(4) Where a well which fails to discover petroleum is drilled and abandoned, the expenditure incurred in drilling the well, which has not been deducted under another provision of this Act, shall be deducted in the year of income in which the well is abandoned.

(5) Where in ascertaining the gains or prots of a petroleum company in a year of income, there results a decit, the amount of that decit shall be an allowable deduction in ascertaining the gains or prots of the previous year of income but the decit may only be carried back (a) from a year of income which the petroleum company has ceased permanently to produce petroleum; and (b) for not more than three years of income from the year in which the decit occurred.

Transactions with 6.Where a transaction takes place between a petroleum company afliates.

and an afliate, the income chargeable, or the deduction allowable to that company, shall be deemed to be the amount that might have been expected to accrue if that transaction had been conducted by independent persons dealing at arms length.

Assignments of a7.

(1) An assignment of a right under a petroleum agreement shall petroleum agreement not give rise to a chargeable gain under the Eighth Schedule but, subject and disposal of to this paragraph, the consideration for the assignment shall be treated as assets.

a receipt of the petroleum company, and tax shall be charged accordingly.

(2) Where an assignment of a right under a petroleum agreement involves the disposal of assets which represent qualifying expenditure, there shall be deducted from the consideration for the assignment the amount of the qualifying expenditure not yet allowed against income.

(3) Where the assignment is of part only of the rights held by a petroleum company, or where not all the assets which represent qualifying expenditure are included in the assignment, the amount of qualifying expenditure not yet allowed against income which is to be deducted from the consideration for the assignment shall be apportioned by the Commissioner.

(4) The amount to be treated as a receipt for the purposes of subparagraph (1) shall be, in the case of an assignment at arms length, Rev.

2012] Income Tax CAP.

470 227 the consideration therefor and in any other case, the market value of that which is assigned, but where part of the consideration consists of the undertaking by the assignee of a work obligation, no amount in respect thereof shall be taken into account under this paragraph.

(5) Where a right under a petroleum agreement is assigned, the Assignee shall be treated as having incurred, at the date of the assignment, qualifying expenditure equal to the lesser of the total amount of the consideration paid for the assignment and the market value of rights and assets representing qualifying expenditure assigned.

(6) Subject to paragraph 6, where a petroleum company sells, disposes or removes from Kenya an asset which represents qualifying expenditure, otherwise than on an assignment of a right under a petroleum agreement, and the net proceeds of the sale are (a) less than the qualifying expenditure not yet allowed against income, a deduction, in this Schedule referred to as a balancing deduction, shall be made to the company, in the year of income in which the sale or disposal takes place, equal to the difference; (b) more than the qualifying expenditure not yet allowed against income, a charge, in this Schedule referred to as a balancing charge, shall be made to the company, in the year of income in which the sale or disposal takes place, equal to the difference.

(7) Subject to this Part, where an asset representing qualifying expenditure is brought into use without being purchased, or, without being sold, ceases permanently to be used, by a petroleum company, it shall be deemed to have been purchased or sold at market value.

PART IIITAxATION OF PETROlEuM SERVICE SubCONTRACTORS 8.

Notwithstanding any other provision in this Act, prots or gains Petroleum service of a petroleum service subcontractor in respect of services provided in subcontractors.

Kenya to a petroleum company shall be deemed to be income derived from Kenya and payment of tax by the petroleum company in accordance with this Part shall release the petroleum service subcontractor from liability for tax arising on that part of his income, prots or gains which derive from those services.

9.(1) Petroleum service subcontractors shall be deemed to Assumed prot rate.

have made a taxable prot equal to fteen per cent, in this paragraph referred to as the assumed prot rate, of the moneys referred to in subparagraph (2) which prots shall be taxed at the rate set out in the Third Schedule applicable to non-resident companies which have a 228 [Rev.

2012 CAP.

470 Income Tax permanent establishment in Kenya.

(2) The assumed prot rate shall be applied to all moneys paid by a petroleum company to a petroleum service subcontractor, hereinafter referred to as the taxable service fee, but excluding (a) moneys actually paid by a petroleum company to reimburse the petroleum service subcontractor for the cost of mobilization and, where applicable, demobilization; and (b) reimbursement of expenses.

(3) Payment for mobilization and demobilization shall not exceed the amounts normally paid in the international petroleum industry, having regard to the circumstances of the contract, and shall not be at a level calculated to transfer a part of the taxable service fee to the non-taxable moneys referred to in subparagraph (2)(a).

(4) In this Part mobilization and demobilization means the movement of men and equipment to Kenya prior to operating, and from Kenya after completion thereof, provided the movement is not to a third party, but does not include movement of men and equipment in Kenya during operations; reimbursement of expenses means payment by a petroleum company to a petroleum service subcontractor to reimburse that subcontractor for payments made to a third party on behalf of the petroleum company in respect of goods and services which are incidental to the subcontract and would not normally, in the international petroleum industry, be included in the taxable service fee, but does not include a charge for handling or administration.

Payments.

10.

(1) A payment shall not be made by or on behalf of a petroleum company to a petroleum service subcontractor unless an invoice has been issued therefor and a petroleum service subcontractor shall issue distinct and separate invoices to the petroleum company in respect of (a) the taxable service fee; (b) the amounts payable for mobilization and demobilization; and (c) the reimbursement of expenses.

(2) The invoice for reimbursement of expenses shall have attached Rev.

2012] Income Tax CAP.

470 229 copies of the invoices to which it relates and further copies of those invoices shall be kept with the records required by paragraph 12.

(3) When paying a taxable service fee the petroleum company shall (a) deduct an amount of tax equal to the sum produced by applying the income tax rate referred to in paragraph 9(1) to the assumed prot; (b) issue to the petroleum service subcontractor a certicate showing the gross amount of the invoice, the amount deducted for tax and the net amount payable; and (c) retain a copy of the invoice and certicate for a period of three years.

(4) Where a person is required to deduct tax under this Schedule and fails to deduct the whole or part thereof, or fails to remit the amount deducted to the Commissioner in accordance with this Schedule, the provisions of this Act relating to the collection and recovery of tax and the payment of interest thereof shall apply as if the tax were payable by that person on the day when it should have been remitted to the Commissioner.

11.

(1) The tax collected by a petroleum company under this Returns.

paragraph in a month shall be remitted to the Commissioner on or before the twentieth day of the month following the month in which the deduction is made with a return of amounts paid and tax deducted, hereinafter referred to as the subcontractors return showing in respect of the month (a) the total taxable service fee paid; (b) the total tax deducted and remitted; (c) the total amount paid for mobilization and demobilization; and (d) the total amount paid for reimbursement of expenses.

(2) Before making a rst payment to a petroleum service subcontractor, a petroleum company shall deliver to the Commissioner a summary of the terms of the contract with that subcontractor including the terms and rates for operating, mobilization and demobilization reimbursement of expenses, and shall deliver a summary of any change in those terms within fourteen days thereof.

(3) A petroleum company shall, if required, deliver to the Commissioner a copy of the contract with the subcontractor in substantially the same terms as the summary referred to in subparagraph 230 [Rev.

2012 CAP.

470 Income Tax (2).

Records.

12.A petroleum company shall keep up-to-date records, referenced to the invoices of the petroleum service subcontractor and agreeing with the subcontractors return available for inspection at all reasonable time by the Commissioner and showing in respect of each payment made to a petroleum service subcontractor (a) the name and address of the subcontractor and the services provided; (b) the date and amount of the invoice showing separately the totals for the items set out in paragraph 10(1); (c) the tax deducted; and (d) the monthly total of tax deducted and remitted to the Commissioner.

5 of 1998, s.

41, TENTH SCHEDULE (s.

17A) 4 of 1999, s.

42.

AGRICulTuRAl PRODuCE AND ITS AuThORISED AGENTS.

Produce Authorized Agents Maize (grain) Kenya Seed Company Limited.

National Cereals and Produce Board.

Millers.

Wheat (grain) Kenya Seed Company Limited.

Kenya Grain Growers Co-operative Union.

National Cereals and Produce Board.

Millers.

Barley (grain) Kenya Breweries Limited.

Rice (Paddy) National Irrigation Board.

Cut Sugar-cane Miwani Sugar Mills Limited.

Chemilil Sugar Co.

Limited.

Mumias Sugar Co.

Limited.

Associated Sugar Co.

Limited.

Sony Sugar Company Limited.

Muhoroni Sugar-cane Farmers Co-operative Union Limited.

Pyrethrum Flower Pyrethrum Board of Kenya.

(wet and dry) Rev.

2012] Income Tax CAP.

470 231 Tobacco Leaf BAT (Kenya) Limited.

Mastermind Tobacco (K) Limited.

Tea Leaf Kenya Tea Development Authority.

James Finlays P.L.C.

Brooke Bond Kenya Limited.

Eastern Produce African Limited.

Sasini Tea and Coffee Limited.

George Williamson (K) Limited.

Pannel Bellhouse Mwangi & Co.

(Kaisugu Ltd.) Kosagat Tea Estate.

Theta Group Limited.

(Kibwari Tea Estate Limited) Mitchel Cotts & Co.

(E.A.) Limited (Nandi Tea Estates Limited).

Estates Service Limited.

(Siret Tea Co.

Limited) Karirana Estates Limited.

Livingstone Registrars Limited.

(Ngorongo Tea Factory Limited) African Highlands Produce Company.

Coffee Coffee Board of Kenya.

Raw Cashewnuts Kenya Cashewnuts Limited.

National Cereals and Produce Board.

Pigs Farmers Choice Limited.

Uplands Bacon Factory Limited.

Raw Cotton Mwea Ginnery.

Kibos Ginnery.

Hola Ginnery.

Makueni Ginnery.

Meru Ginnery.

Salawa Ginnery.

Malindi Ginnery.

Homa Bay Ginnery.

Kendu Bay Ginnery.

Nambale Ginnery.

Samia Ginnery.

Malakisi Ginnery.

Ndere Ginnery.

Lamu Ginnery.

Kitui Ginnery.

232 [Rev.

2012 CAP.

470 Income Tax Hides and Skins Kamiti Tanners Limited.

Aziz Din Nabi Bux.

New Market Leather Factory Limited.

Bulleys Tanneries Limited.

Nakuru Chrome Tanning Co.

Limited Nakuru Tanners Limited.

Bata Shoe Co.

Limited.

Sagana Tanners Limited.

Alpharama Limited.

Barbar Tannery Limited.

Othor Tanneries.

Furs & Wool Limited.

Kitale Tanneries Limited.

Garissa Tanneries Limited.

Leather Industries of Kenya Limited.

East African Leather Factory Limited.

Lake Tanners Limited.

Deras Limited.

7 of 2002, s.

48A, ELEVENTH SCHEDULE (s.

4B) 15 of 2003, s.

42, 9 of 2007, s.

30.

TAxATION OF ExPORT PROCESSING ZONE ENTERPRISES 1.

In this Schedule, unless the context otherwise requires, export processing zone enterprise has the same meaning as that ascribed to it in the Export Processing Zones Act, 1990.

2.

An export processing zone enterprise shall maintain its business accounts in a convertible foreign currency of its choice provided that the Commissioners consent of that choice has been requested and obtained.

3.

During the period in which an export processing zone enterprise is exempt from corporation tax according to paragraph 2 (f) of the Third schedule (a) the enterprise shall be deemed to be a non-resident subject to a non-resident rate of withholding tax on payments made to such an enterprise and, where such payments are made by a person who is not an export processing zone enterprise, the tax shall be nal tax and (b) payments by an export processing zone enterprise to any person other than a resident person shall be deemed to be Rev.

2012] Income Tax CAP.

470 233 exempted from tax.

4.

Notwithstanding that an export processing zone enterprise will be exempted from paying any corporation tax for the period specied in paragraph 2 (f) of the Third Schedule, the enterprise will nonetheless be required to comply with Part VIII of the Act and will submit an annual return of income under section 52 or a return of income, together with a self-assessment of tax under section 52B and business accounts under section 54 as is the case with all liable enterprises, and in the event of failure to submit a return or late submission of a return, the enterprise will be liable to a penalty of two thousand shillings per day for as long as the failure continues.

5.

The penalty imposed under paragraph (4) shall, for the purposes of the provisions of the Act relating to the deduction and recovery of the tax, be deemed to be tax.

6.

The employees and directors, other than non-residents, of an export processing zone enterprise shall be liable to personal income tax and the export processing zone enterprise employing them will be required to comply with rules and regulations concerning the deduction of tax from their employment income.

7.

Where an export processing zone enterprise contracts out manufacturing services to a related resident company that is not an export processing zone enterprise, all income derived from the sale by the export processing zone enterprise of the goods produced shall be treated as the income of the related resident company, unless the Commissioner is satised that, the services provided to the export processing zone were paid for at a fair market price.

8.

Where the related resident company that is not an export processing zone enterprise provides services other than manufacturing services to an export processing zone enterprise, the related resident company shall not deduct the cost of providing such services unless the Commissioner is satised that the services were provided at a fair market price.

9.

For purposes of this Schedule, two companies are related when one company owns whether directly or indirectly twelve and one-half percent or more of the voting shares of the other company.

.

234 [Rev.

2012 CAP.

470 Income Tax 7 of 2002, s.

49.

TWELFTH SCHEDULE (s.

12(2)) PROVISIONS RElATING TO INSTAlMENT TAx 1.

(a) Except as specied under paragraph (b), instalment tax payable by all persons under section 12 shall be reduced under the provisions of section 12(4) and be payable on the due dates as required under section 92 in the proportions specied as follows Proportions of the amount calculated under section 12 payable on or before the twentieth day of the following months in the accounting For persons with period of the current year of income: accounting periods Fourth Sixth Ninth Twelfth commencing on or month month month month after st 1st January, 1990 15% 1 January, 1991 30% st 1 January, 1992 45% st 1 January, 1993 60% 20% st 1 January, 1994 15% 60% 25% st 1 January, 1995 30% 45% 25% st 1 January, 1996 25% 25% 25% 25% (b) Where a person can satisfy the Commissioner that more than two thirds of his income is derived from agricultural, pastoral, horticultural or similar activities, the instalment tax payable by such persons under section 12 will be reduced under the provisions of section 12(4) and be payable on the due dates as required under section 92 in the proportions specied as follows Proportions of the amount calculated under section 12 payable on or before the twentieth day of the following months in the current year of income: For persons with Sixth Ninth Twelfth accounting periods Month Month Month commencing on or after st 1 January, 1990 15% st 1 January, 1991 30% st 1 January, 1992 45% Rev.

2012] Income Tax CAP.

470 235 st 1 January, 1993 60% 20% st 1 January, 1994 75% 25% st 1 January, 1995 75% 25% 2.

Where the instalment tax payable is calculated by reference to subsection 2(b) of Section 12 and (a) the companys immediate preceding year consists of less than three hundred and sixty ve days, the tax payable for the preceding year will be deemed to be an amount that would have been assessed had the companys immediate preceding year been made up of three hundred and sixty ve days by multiplying the ratio that three hundred and sixty ve days is of the number of days in that year of income: (b) the company that is making payment was formed as a result of amalgamation of two or more companies, the tax assessed and payable for the immediately preceding year will be deemed to be the aggregate of the tax that would have been payable by all the predecessor companies; (c) the company that is making payment has had transferred to it during winding up in the year preceding the year of income all or substantially all the property from any of the companies which it controls by means of the holding of shares or possession of voting power, the companys tax payable in the preceding year will be deemed to be the aggregate of its own tax payable together with that of the company that it controls; (d) the company making payment has had transferred to it by a related company in the preceding year of income all or substantially all of its property the companys tax payable in the preceding year of income will be deemed to be the sum total of the tax payable by both the transferor and the transferee companies; (e) the company making payment has commenced its business in that year of income, the companys preceding year of income will be deemed to be NIL; (f) tax assessed and payable for the preceding year shall be taken to mean the amount payable immediately before the due date for the instalment tax and shall disregard any subsequent amendments and adjustments; (g) where under this Act, a person has been permitted to make up the accounts of his business for a period greater than 236 [Rev.

2012 CAP.

470 Income Tax twelve months, the person shall calculate the instalment tax payable for such period in accordance with section 12 of this Act, and then multiply the result by the ratio of the number of days in the current year of income to 365 days.

3.

The payment of instalment tax under section 12 shall be accompanied by the following information (a) a declaration of the choice of method adopted by the person in computing the instalment tax payable; (b) where the tax is computed on the basis of an estimate of the current year of income, the total income of the person making the payment for that year of income including income deemed to be his under this Act which is chargeable to tax based on all information available to him at the date upon which the payment is made and which he believes to be true, and the tax chargeable on that income calculated by reference to the appropriate reliefs and rates of tax in force at the date of the return; (c) where the tax is computed on the basis of the preceding year assessment, the amount of tax assessed for the preceding year; and (d) a declaration by the person making the payment or by the person in whose he is assessable that the instalment payment is a full and true estimate to the best of his knowledge and belief.

8 of 1997, s.

51.

THIRTEENTH SCHEDULE (s.

132( 6)) TRANSACTIONS FOR WhICh PERSONAl IDENTIFICATION NuMbER (PIN) WIll bE REquIRED Institution Purpose of Transaction Commissioner of Lands Registration of title and stamping of instruments.

Local Authorities Approval of plans and payment of water deposits Rev.

2012] Income Tax CAP.

470 237 Registrar of Motor Vehicles Registration of motor vehicles transfer of motor vehicles, licensing under the Trafc Act(Cap.

403)) Registrar of Business Names.

New registration.

Registrar of Companies Underwriting of politics Ministry of Commerce Trade licensing Commissioner of VAT Applying for registration Central Bank of Kenya Customs and Excise Importation of goods Customs Clearing and Forwarding Kenya Power & Lighting Company Payment of deposit for power Ltd.

connection All Government Ministries and All contracts, supply of goods and public bodies services.

Company partnership, institution or other legally constituted body of persons; and provision of consultancy, agency or other contract services.

238 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] L.N.

17/1975, SUBSIDIARY LEGISLATION L.N.

269/1980, L.N.

19/1985, L.N.

269/1986, Declaration under denition of permanent or semi-permanent crops L.N.

54/2005, under section 2(1).

L.N.

66/2006.

DEClARATION OF CROPS Cashew nuts, citrus, cloves, coconuts, coffee, essential oils, New Zealand ax, passion fruit, paw paws, pineapples, pyrethrum, sisal, wattle, sugar-cane, tea, rubber, vanilla, apples, pears, peaches, plums, apricots, cocoa, macadamia, cinchona and tara.

Jojoba plant and banana.

Roses.

Grape vines.

Eucalyptus, pine and cypress.

Avocadoes and mangoes.

Rules under Section 82 THE INCOME TAX (LOCAL COMMITTEES) RULES L.N.

7/1974, L.N.

103/ 1976, L.N.

95/ 1980.

1.

These Rules may be cited as the Income Tax (Local Committees) Citation.

Rules.

Interpretation.

2.

In these Rules, unless the context otherwise requires appeal means an appeal to a local committee under section 86 or section 89; appellant means a person entering an appeal and the advocate or duly authorized agent of that person; clerk means the clerk of a local committee appointed pursuant to rule 3; memorandum means a memorandum of appeal presented under rule 4; respondent includes a person who under section 89(3)(c) or (d) is entitled to appear on an appeal as if he were a party thereto and the advocate or duly authorized agent of that person; section means a section of the Act.

Rev.

2012] 239 Income Tax CAP.

470 [Subsidiary] 3.

(1) The Commissioner shall appoint an ofcer of the Income Tax Appointment of Department to be the clerk to a local committee; and the Commissioner may clerk.

appoint one ofcer as clerk to two or more local committees.

(2) A clerk shall, in matters relating to appeals to the local committee and procedure therefor, comply with any general and special directions lawfully given by the chairman.

(3) A clerk shall by notice in the Gazette notify his address for the presentation or service of documents for the purpose of these Rules and shall in the same manner notify any change in that address.

4.

An appeal shall be entered by presentation of a memorandum of appeal Form of and time for to the clerk within fourteen days after the date on which the appellant gives notice lodging an appeal.

of appeal in writing to the Commissioner pursuant to section 86(1); but where the local committee is satised that owing to absence from his normal place of residence, sickness or other reasonable cause the appellant was prevented from presenting a memorandum within that period and that there has been no unreasonable delay on his part, the local committee may extend that period.

5.

A memorandum shall be signed by the appellant and shall set out Memorandum of concisely under distinct heads, numbered consecutively, the grounds of appeal appeal.

without argument or narrative.

6.(1) A memorandum shall be accompanied by Statement of facts of - appellant.

(a) a copy of the conrming notice, the amending notice or the notice of the decision of the Commissioner as the case may be: (b) a copy of the notice of appeal; (c) a statement, signed by the appellant, setting out the facts on which the appeal is based and referring to any documentary or other evidence which it is proposed to adduce at the hearing of the appeal; and (d) a certicate signed by the Commissioner acknowledging receipt of the return of income required by section 52, together with the documents specied in section 54, for the year to which the appeal relates.

(2) In this rule amending notice means a notice setting out an amendment to an assessment served under section 85(3) (a); conrming notice means a notice conrming an assessment served under section 85(3) (b); decision of the Commissioner means a decision or act of the Commissioner, which, under section 89, may be the subject of an appeal.

240 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] 7.

Within forty-eight hours after the presentation of a memorandum to the clerk, Service of a copy thereof and of the statement of facts of the appellant shall be served by memorandum.

the appellant upon the Commissioner and upon every other respondent.

8.

(Revoked by L.

N.

103/1976).

Notice and place of 9.

(1) As soon as may be convenient after receipt by him of a hearing memorandum the clerk shall notify the chairman thereof.

(2) The chairman shall, after the Commissioner has led a statement of facts or has notied the clerk that he does not intend to do so, xa time, date and place for a meeting of the local committee for the purpose of hearing the appeal and the clerk shall cause notice thereof to be served on the appellant, the Commissioner and every other respondent.

(3) Unless the parties to the appeal otherwise agree, each party shall be entitled to not less than seven days notice of the time, date and place xed for the hearing of the appeal.

Procedure.

10.

At the hearing of an appeal, the following procedure shall be observed (a) the Commissioner and any other respondent shall be entitled to be present or to be represented; (b) the appellant shall state the ground of his appeal and support it by relevant evidence, but save with the consent of the local committee and upon such terms as it may determine, the appellant may not at the hearing rely on a ground of appeal other than a ground stated in the memorandum and may not adduce evidence other than evidence previously adduced to the Commissioner; (c) at the conclusion of the statement and evidence on behalf of the appellant, the Commissioner and any other respondent shall be entitled to make submissions, supported by relevant evidence; (d) the appellant shall be entitled to reply but may not rely on a ground of appeal or on evidence other than that adduced at the hearing; (e) the chairman or a member of the local committee may at any stage of the hearing ask any questions of the appellant or the Commissioner, or any other respondent, or a witness examined at the hearing, which he considers necessary to the determination of the appeal; (f) a witness called and examined by a party may be cross-examined by another party to the appeal and if so cross-examined may be re-examined; (g) a witness called and examined by the local committee may be cross-examined by a party to the appeal; Rev.

2012] 241 Income Tax CAP.

470 (h) the local committee may adjourn the hearing of the appeal for [Subsidiary] the production of further evidence or for other good cause, as it considers necessary and on such terms as it may determine; (i) before the local committee considers its decision the parties to the appeal shall withdraw from the meeting, and the local committee shall deliberate the issue according to law; (j) the decision of the local committee shall be determined by a majority of the members present and voting at the meeting, and in the case of an equality of votes the chairman shall have a casting vote in addition to his deliberative vote; (k) minutes of the meeting shall be kept and the decision of the local committee recorded therein.

11.

In matters of procedure not governed by these Rules or the Act, a Local committee local committee may determine its own procedure.

to determine own procedure in certain matters.

12.

Save where a local committee in a particular case otherwise directs or Copies of documents where a party to the appeal objects, copies of documents shall be admissible in admissible.

evidence, but the local committee may at any time direct that the original shall be produced notwithstanding that a copy has already been admitted in evidence.

13.No fees shall be payable, and a local committee shall not make any Fees and costs.

order as to costs, on an appeal save where the grounds of appeal are held by the committee to be frivolous, in which case the committee may order the appellant to pay as costs to the Commissioner and each other respondent a sum not exceeding ve hundred shillings.

Rules under Section 83 THE INCOME TAX (TRIBUNAL) RULES 1.

These Rules may be cited as the Income Tax (Tribunal) Rules.

L.N.

5/1974.

Citation.

2.

In these Rules, unless the context otherwise requires Interpretation.

appeal means an appeal to the Tribunal under section 86(1)( a); appellant means a person entering an appeal and the advocate or duly authorized agent of that person; 83(2); chairman means the chairman of Tribunal appointed under section 242 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] clerk means the clerk of the Tribunal appointed pursuant to rule 3; memorandum means a memorandum of appeal presented under rule 4; section means a section of the Act.

Appointment of 3.

(1) The Commissioner shall appoint a person to be the clerk of the clerks.

Tribunal, and that person may be an ofcer of the Income Tax Department.

(2) The clerk shall, in matters relating to appeals to the Tribunal and procedure therefor, comply with general and special directions lawfully given by the chairman.

(3) The clerk shall by notice in the Gazette notify his address for the presentation or service of documents for purposes of these Rules, and shall in the same manner notify any change in that address.

Form of and time for 4.

An appeal shall be entered by presentation of a memorandum of appeal, lodging an appeal.

together with ve copies thereof, to the clerk within fourteen days after the date on which the appellant gives notice of appeal in writing to the Commissioner pursuant to section 86(1); but where the Tribunal is satised that, owing to absence from his normal place of residence, sickness or other reasonable cause, the appellant was prevented from presenting a memorandum within that period, and that there has been no unreasonable delay on his part, the Tribunal may extend that period notwithstanding that the period has already expired.

Memorandum of 5.

A memorandum shall be signed by the appellant and shall set out appeal.

concisely under distinct heads, numbered consecutively, the grounds of appeal without argument or narrative.

Statements of facts of 6.

(1) Each copy of a memorandum shall be accompanied by appellant.

(a) a copy of the conrming notice or the amending notice as the case may be; (b) a copy of the notice of appeal; and (c) a statement, signed by the appellant, setting out precisely all the facts on which the appeal is based referring specically to documentary or other evidence which it is proposed to adduce at the hearing of the appeal, and to which shall be annexed a copy of each document or extract from a document referred to upon which the appellant proposes to rely as evidence at the hearing of the appeal.

(2) In this rule amending notice means a notice setting out an amendment to an assessment served under section 85(3)(a); conrming notice means a notice conrming an assessment served Rev.

2012] 243 Income Tax CAP.

470 under section 85(3) (b).

[Subsidiary] 7.

Within forty-eight hours after the presentation of a memorandum Service of to the clerk, a copy thereof and of the statement of facts of the appellant and memorandum of the documents annexed thereto shall be served by the appellant upon the appeal.

Commissioner.

8.

(1) The Commissioner shall, if he does not accept any of the facts of Statement of facts of the appellant, within twenty-one days after service thereof upon him under rule Commissioner.

7, le with the clerk a statement of facts together with ve copies thereof and the provisions of rule 6(1)(c) shall mutatis mutandis apply to that statement of facts.

(2) At the time of ling a statement of facts pursuant to paragraph (1), the Commissioner shall serve a copy thereof, together with copies of any documents annexed thereto, upon the appellant.

(3) If the Commissioner does not desire to le a statement of facts under this rule, he shall forthwith give written notice to that effect to the clerk and to the appellant, and in that case the Commissioner shall be deemed at the hearing of the appeal to have accepted the facts set out in the statement of facts f the appellant.

9.

(1) As soon as may be convenient after receipt by him of the Notice and place of memorandum the clerk shall notify the chairman thereof.

hearing.

(2) The chairman shall, after the Commissioner has led a statement of facts or has notied the clerk that he does not intend to do so, xa time, date and place for a meeting of the Tribunal for the purpose of hearing the appeal, and the clerk shall cause notice thereof to be served on the appellant and the Commissioner.

(3) The clerk shall cause to be supplied to each member of the Tribunal a copy of the notice of hearing and of all documents received by him from the parties to the appeal.

(4) Unless the parties to the appeal otherwise agree, each party shall be entitled to not less than seven days notice of the time, date and place xed for the hearing of the appeal.

10.

At the hearing of an appeal, the following procedure shall be Procedure observed (a) the Commissioner shall be entitled to be present or to be represented; (b) the appellant shall state the ground of his appeal and may support it by any relevant evidence, but, save with the consent of the Tribunal and upon such terms as it may determine, the appellant may not at the hearing rely on a ground of appeal other than a ground stated in the memorandum and may not adduce evidence of facts or 244 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] documents unless those facts have been referred to in, and copies of those documents have been annexed to, the statement of facts to the appellant; (c) at the conclusion of the statement, and evidence on behalf of the appellant, the Commissioner may make submissions, supported by relevant evidence, and the provisions of subparagraph (b) shall mutatis mutandis apply to evidence of facts and documents to be adduced by the Commissioner; (d) the appellant shall be entitled to reply but may not raise a new issue or argument; (e) the chairman or a member of the Tribunal may at any stage of the hearing ask any questions of the appellant or the Commissioner or a witness examined at the hearing, which he considers necessary to the determination of the appeal; (f) a witness called and examined by either party may be cross- examined by the other party to the appeal and if so cross-examined may be re-examined; (g) a witness called and examined by the Tribunal may be cross- examined by either party to the appeal; (h) the Tribunal may adjourn the hearing of the appeal for the production of further evidence or for other good cause, as it considers necessary, on such terms as it may determine; (i) before the Tribunal considers its decision the parties to the appeal shall withdraw from the meeting, and the Tribunal shall deliberate the issue according to law and reach its decision thereon; (j) the decision of the Tribunal shall be determined by a majority of the members present and voting at the meeting, and in the case of an equality of votes the chairman shall have a casting vote in addition to his deliberative vote; (k) minutes of the meeting shall be kept and the decision of the Tribunal recorded therein.

Tribunal to 11.

In matters of procedure not governed by these Rules or the Act, the determine own Tribunal may determine its own procedure.

procedure in certain matters.

12.

Save where the Tribunal in any particular case otherwise directs or Copies of where a party to the appeal objects, copies of documents shall be admissible documents in evidence, but the Tribunal may at any time direct that the original shall be admissible.

produced notwithstanding that a copy has already been admitted in evidence.

Fees and costs.

13.

No fees shall be payable, and a Tribunal shall not make any order Rev.

2012] 245 Income Tax CAP.

470 as to costs, on an appeal save where the grounds of appeal are held by the [Subsidiary] Tribunal to be frivolous, in which case the Tribunal may order the appellant to pay as costs to the Commissioner a sum not exceeding ve hundred shillings.

Rules under section 91 THE INCOME TAX (APPEALS TO THE HIGH COURT) RULES L.N.

105/1974, L.N.

41/1980.

1.

These Rules may be cited as the Income Tax (Appeals to the High Citation.

Court) Rules.

2.

In these Rules, unless the context otherwise requires Interpretation.

address for service means a place of residence or a place of business within the jurisdiction; appeal means an appeal to the Court under section 86(2); memorandum means a memorandum of appeal presented under rule 3; Registrar means the Registrar or a Deputy Registrar of the Court; respondent includes a person who under section 89( 3) is entitled to appear before a committee; section means a section of the Act.

3.

No appeal shall be led unless a memorandum of appeal is presented Form of and time of to the Registrar during ofce hours, and a copy served upon the respondent, within 30 days after the date of service upon the respondent of a notice of appeal ling appeal.

under section 86(2); but where the Court is satised that, owing to absence from Kenya, sickness, or other reasonable cause, the appellant was prevented from presenting the memorandum of appeal within that period and that there has been no unreasonable delay on his part, the Court may extend that period.

4.

A memorandum shall contain an address for service, shall be signed Form of by the appellant or his advocate and shall set out concisely under distinct heads, memorandum numbered consecutively, the grounds of appeal without argument or narrative.

Statement of facts of appellant.

5.A memorandum shall be accompanied by Statement of facts of (a) a copy of the decision or the notice of the decision appealed against; appellant.

(b) a copy of the notice of appeal served on the respondent; and (c) a statement, signed by the appellant or his advocate, setting out the facts upon which the appeal is based, and respectively 246 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] specifying and referring to documentary or other evidence which it is proposed to adduce at the hearing of the appeal.

Registration of 6.

(1) After the memorandum and the documents referred to in rule 5 Memorandum.

have been presented, and all ling and service fees due in relation thereto have Cap.

21.

been paid, the Registrar shall cause the date of presentation to be date-stamped Sub.

Leg.

thereon, and the appeal shall be numbered and entered (as an Income Tax Appeal) in the register of appeals, in accordance with rule 8(1) of Order XLI of the Civil Procedure Rules.

(2) After entry of an appeal in the register of appeals as provided in paragraph (1), the Registrar shall ensure that, in respect of all documents relating to the appeal, the words Income Tax Appeal and the number of that appeal are included in the title of the appeal wherever the title occurs.

(3) The date on which the memorandum is presented is the date of ling of the appeal notwithstanding any dispute as to the amount of any service fee payable.

Abatement of 6A.

An appeal shall abate in any case where any ling and service fees appeals.

due in relation to that case have not been paid in full within fourteen days of the appellant having been notied of the total amount of the fees payable by him, and where an appellant is so notied by post he shall be deemed, until the contrary is proved, to have received notication at the time at which the letter would be delivered in the ordinary course of post.

Service of 7.

A copy of the memorandum of appeal and the documents referred to memorandum of in rule 5 shall be served by the Registrar upon the respondent upon payment of appeal.

the prescribed fee for service thereof, but in a case referred to in section 89(3) (c) service shall be made by the appellant.

Statement of facts of 8.

The respondent shall, if he intends to contest the appeal, present to respondent.

the Registrar, during ofce hours and within thirty days of the service upon him of the copy of memorandum and the documents referred to in rule 5, a statement in duplicate each signed by him, giving an address for service, setting out the facts on which he relies, and respectively specifying and referring to documentary or other evidence which he proposes to adduce at the hearing of the appeal, and a copy of the statement shall be served by the Registrar upon the appellant upon payment of the prescribed fee for service thereof.

Notice and place of 9.

Unless the parties otherwise agree, the Registrar shall give fteen hearing.

clear days notice in writing to the parties of the date and place xed for the hearing of the appeal.

Right to begin.

10.

(1) On the day at the time xed, or on any other day to which the hearing may be adjourned, the appellant shall be heard in support of the appeal.

(2) The Court shall, if it does not dismiss the appeal at once, hear the respondent and the appellant shall be entitled to reply.

Dismissal of appeal 11.

(1) Where on the day xed, or on any other day to which the hearing Rev.

2012] 247 Income Tax CAP.

470 [Subsidiary] may be adjourned, the appellant does not appear when the appeal is called on for appellants for hearing, the Court may, subject to section 87(2)(a), make an order that the default.

appeal be dismissed.

(2) Where the appellant appears and the respondent does not appear, the Court may proceed to hear the appeal ex parte.

12.

Where an appeal is dismissed under rule 11 the appellant may apply Readmission of to the Court to which the appeal is preferred for the readmission of the appeal, appeal dismissed for and, where it is proved that he was prevented by any sufcient cause from default.

appearing when the appeal was called on for hearing, the Court shall readmit the appeal on such terms as to costs or otherwise as it thinks t.

13.

Where an appeal is heard ex parte and judgement is pronounced Rehearing on against the respondent, he may apply to the Court to which the appeal application of is preferred to rehear the appeal; and if he satises the Court that the respondent against memorandum of appeal and the documents referred to in rule 5 were not whom ex parte duly served, or that he was prevented by sufcient cause from appearing decree made.

when the appeal was called on for hearing, the Court shall rehear the appeal on such terms as to costs or otherwise as it thinks t to impose upon him.

14.

The appellant shall not, except by leave of the Court and upon such Grounds of appeal.

terms as the Court may determine, rely on a ground other than a ground stated in the memorandum of appeal.

15.

Should it appear to the Court at the hearing of the appeal that Additional evidence.

documentary or oral evidence other than that referred to in the statement of facts of the appellant or respondent should be admitted, the Court may admit that evidence.

16.

Subject to section 121 and save where the Court in a particular case Copies of documents otherwise directs or where a party to the appeal objects, copies of documents shall be admissible.

admissible in evidence, but the Court may at any time direct that the original shall be produced notwithstanding that a copy has already been admitted in evidence.

17.

(1) Ancillary applications to a judge, if not made at the hearing, shall Proceedings in be made by summons entitled in the matter of the appeal, supported by afdavit.

chambers.

(2) If no appeal is pending, the summons shall be entitled in the matter of the intended appeal.

18.

Where a decree following the decision of the Court does not specify Execution of decree the amount of tax payable under the assessment as determined by the Court where tax payable then, for the purposes of the execution of that decree, the Commissioner shall not set out therein.

(a) where the decision of the Court results in an amendment to the assessment, le with the Registrar a copy, certied by him, of a notice served under section 87(2)(f) on the person assessed; or (b) where the decision does not result in an amendment to the assessment, le with the Registrar a statement signed by him setting out the amount of tax payable under the notice of assessment served 248 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] under section 78 or the amending notice, as the case may be, and thereupon that decree shall have effect as if it were a decree for the payment of the amount of tax set out in the notice or statement, as the case may be.

Fees.

19.

A ling fee of one hundred shillings shall be payable on presentation of an appeal under these Rules, and the scale of fees for the time being in force in civil matters in the Court shall apply in respect of the service of all documents, and to all subsequent acts, applications or proceedings, in relation to the appeal.

Extent to which rules 20.

The rules determining procedure in civil suits before the Court in on civil procedure so far as those rules relate to recognized agents and advocates, to service, to apply.

consolidation, to admissions, to the production, impounding and return of documents, to the summoning and attendance of witnesses, to adjournments, to the examination of witnesses, to afdavits, to judgment and decree, to the execution of decrees, to the attachment of debts, to the death, bankruptcy and marriage of parties, to withdrawal, discontinuance and adjustment, to security for costs, to commissions, to corporations, to trustees, executors and administrators, and to the enlargement of time shall, to the extent to which those rules are not inconsistent with the Act or these Rules, apply to an appeal as if it were a civil suit but, save as provided in these Rules, the procedure relating to civil suits before the Court shall not apply to an appeal.

L.N.

257/1973, Rules under section 130 L.N.

122/1986, L.N.

201/1986, THE INCOME TAX (P.A.Y.E) RULES L.N.

31/1994, L.N.

98/2001, L.N.

175/2001, L.N.

80/2008, L.N.

90/2009, L.N.

54/2011.

1.

These Rules may be cited as the Income Tax (P.A.Y.E) Rules.

Citation.

Interpretation.

2.

(1) In these Rules, unless the context otherwise requires Commissioner includes an ofcer authorized in writing by the Commissioner to exercise and perform functions conferred upon the Commissioner under these Rules; emoluments means (a) gains or prots from employment or services rendered which are payable in money; and (b) the value of housing provided by an employer ascertained under section 5(3) of the Act; and (c) the value of benet or facility provided by the employer, where the total value exceeds three thousand shillings per month; Rev.

2012] 249 Income Tax CAP.

470 (d) (Deleted by L.N.

90/2009.) [Subsidiary] employee includes an individual receiving emoluments in respect of any employment, ofce, appointment or past employment; monthly pay, in relation to a month, means the emoluments receivable by an employee during that month, calculated in accordance with the Act and these Rules; monthly personal relief, in relation to a month, means that amount of personal relief to which an employee is entitled in that month in accordance with the relief claim form which he has completed together with any other amount for that month notied to the employer by the Commissioner, and unused monthly personal relief, from a previous month or months in the same year of income; monthly personal relief notication means a notication provided by the Commissioner to the employer with respect to monthly personal relief of the employee; relief claim form means the relief claim form provided, or in a particular case authorized, by the Commissioner on which an employee claims the reliefs to which he is entitled under Part V of the Act; tax deduction card means the tax deduction card in the form provided by the Commissioner, or such other document corresponding to a tax deduction card as may be authorized by the Commissioner in a particular case, and on which the information that the Commissioner may direct with respect to tax is recorded; tax tables means the tables of income tax computed by the Commissioner in accordance with the rates of income tax specied in the Act for a year of income; unused personal relief, in relation to a month or months in the same year of income, means that amount of monthly personal relief as is in excess of the tax payable under these Rules in that month or months.

(2) Nothing in these Rules shall apply to an employer none of whose employees receive emoluments exceeding three thousand six hundred shillings per annum or such greater sum as the Commissioner may, by notice in the Gazette, specify.

3.

Section 128 of the Act shall apply to a notice or other document which Application of is authorized or required to be given, served or issued by the Commissioner section 128 of Act.

under these Rules.

4.

(1) An employer who makes a payment of, or on account of, Deduction of tax.

emoluments during a month to an employee of his who is liable to payment of tax shall deduct tax from those emoluments in accordance with these Rules.

(2) An employer who fails to comply with the requirement of paragraph (1) shall be guilty of an offence.

250 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] Calculation of 5.

An employer shall in each month calculate, by reference to the tax monthly tax due.

tables, the tax due from each of his employees in that month having regard to the monthly personal relief of that employee.

Provided that an employee shall be entitled to a relief from only one employer.

Calculation of 6.

(1) On the occasion of the last payment of emoluments in a month to deduction and an employee, the employer shall, except where these Rules otherwise provide, maintenance of ascertain, in respect of that month, the monthly pay of the employee, the monthly records.

tax chargeable thereon, and the monthly personal relief of the employee.

(2) If, in the case of an employee, the tax chargeable for a month exceeds his monthly personal relief, the employer shall deduct the amount of that excess from the last payment of emoluments in that month, but if the tax chargeable in a month is greater than the last payment of emoluments to the employee in that month, the employer shall deduct the amount of tax which is not recoverable from that payment from the rst payment of emoluments in the following month and from any subsequent payments as may be necessary to recover that amount.

(3) The employer shall, on the tax deduction card, record for every month in which a payment of emoluments is made to an employee, such particulars as the Commissioner may direct in respect of that payment.

(4) An employer who fails to comply with paragraph (2) or (3) shall be guilty of an offence.

Notication of 7.

On the occasion of the last payment of emoluments in a month to an emoluments and tax employee, the employer shall in writing notify the employee of the total amount deducted.

of the emoluments paid by the employer to the employee during that month, the total tax deducted from those emoluments and such other particulars as the Commissioner may require.

8.

(1) If an employee is aggrieved by a calculation with respect to the deduction of tax from his emoluments and is unable to reach agreement with his employer, then (a) the employer shall inform the employee of his rights under this rule and shall, at the request of the employee, furnish the employee with a written statement showing the manner in which the employer arrived at that calculation; (b) the employee may give notice of objection in writing to the Commissioner, but that notice shall be valid only if (i) it states precisely the grounds of his objection; (ii) there is enclosed therewith the written statement furnished by his employer; and Rev.

2012] 251 Income Tax CAP.

470 (iii) it is received by the Commissioner within thirty days of the [Subsidiary] date on which that statement was received by the employee.

(2) On receipt of a notice of objection under this rule the Commissioner shall consider the objection and, subject to and in accordance with these Rules, may amend the calculation or reject the objection.

(3) The Commissioner shall forthwith notify the employer and the employee in writing of his decision on an objection and thereafter on the occasion of payment to that employee in any month of, or on account of, emoluments the amount of tax deducted therefrom by the employer shall be in accordance with that decision.

(4) Notwithstanding that a valid objection has been made, on the occasion of payment to the employee in any month of, or on account of, emoluments from which tax is to be deducted in accordance with these Rules, the amount of tax deducted by the employer shall be in accordance with the calculation by the employer until the employer is notied by the Commissioner of his decision with respect to the objection.

(5) Where an amount of tax has been deducted in excess of the amount payable by reason of a decision of the Commissioner under this rule, the Commissioner shall refund that amount to the employee.

9.

At the end of every month, an employer shall compile, in the manner End of month that the Commissioner may direct, a list which shall include the name of each procedure.

employee in his employment from whose emoluments tax was deducted during that month together with the particulars of the amount of tax deducted and such other particulars as the Commissioner may require.

9A.

Before the 10th day of the month following the end of each quarter, an employer shall render to the Commissioner a return of emoluments made to each employee in each of the three months, the tax deducted and such other particulars as the Commissioner may require.

10.

(1) Before the tenth day following the end of every month or before Payment of tax by any other day which may be notied to him by the Commissioner, an employer employer.

shall, subject to paragraph (2), pay, to such person as the Commissioner shall direct, all amounts of tax which the employer has deducted under these Rules during that month: Provided that in the case of a director, the due date shall be before the tenth day following the end of the month in which payment was made to the director, or the fourth month after the accounting date, whichever is the earlier.

(2) Paragraph (1) shall not apply to an employer in respect of a month in which the total amount of tax deducted by him is less than one hundred shillings, and in that case, or where in a month no tax is deductible by an employer under these Rules, the employer shall send, before the tenth day following the end of that month or before any other day which may be notied to him by the Commissioner, to the Commissioner a certicate, in the form authorized or provided by the Commissioner showing either that the amount of tax which he 252 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] deducted in that month was less than one hundred shillings or that he deducted no tax in that month: Provided that when the amount of tax deducted by an employer in a month is less than one hundred shillings, that amount shall be added to the amount of tax deducted by him in the following month, or months, and when in a month the total of all those amounts is greater than one hundred shillings, the employer shall comply with paragraph (1); so however, that the employer shall comply with paragraph (1) in the month of December in each year notwithstanding that the total amounts of tax is less than one hundred shillings.

(3) A person to whom the Commissioner has, under paragraph (1), directed that an employer pay tax shall keep a record of payment in the form that the Commissioner may direct and shall enter therein particulars of tax which has been paid to him.

(4) An employer who, having deducted tax under this rule fails to account therefor in the manner that the Commissioner may direct, or who fails to comply with paragraph (2), shall be guilty of an offence.

Employer failing to 11.

(1) If, before the tenth day following the end of a month, or before pay tax or to provide a later day that may have been notied to him by the Commissioner, an employer has paid no tax under rule 10 for that month and the Commissioner required certicate.

is unaware of the amount, if any which the employer is liable to pay, or the employer has failed to provide the certicate mentioned in paragraph (2) of that rule, the Commissioner may give notice to the employer requiring him to render, within the time specied in the notice, a return showing the name of every employee to whom he made a payment of emoluments in the period stated in the notice, together with those particulars with regard to each employee that the notice may require being particulars of (a) a calculation under rule 5 appropriate to the employees case; (b) the payments of emoluments made to the employee during that period; and (c) any other matter affecting the calculation of the tax which the employer was liable under these Rules to deduct from the payments of emoluments to the employee during that period.

(2) The Commissioner shall ascertain and certify to the best of his knowledge and belief the amount of tax which the employer would have been liable to pay under rule 10 in respect of the month in question had he complied with the provisions of these Rules.

(3) The production of the return made by the employer under paragraph (1), and of the certicate of the Commissioner under paragraph (2), shall be sufcient evidence that the amount shown in the certicate is the amount of tax which the employer would have been liable to pay under rule 10 in respect of the month in question had he complied with the provisions of these Rules and a document purporting to be such a certicate shall be deemed to be Rev.

2012] 253 Income Tax CAP.

470 [Subsidiary] such a certicate until the contrary is proved.

(4) Where a notice given by the Commissioner under paragraph (1) extends to two or more consecutive months, these Rules shall have effect as if those consecutive months were one month.

(5) If the Commissioner is not satised that the amount paid in respect of a month is the full amount which the employer would have been liable to pay under rule 10 had he complied with these Rules, he may notwithstanding that an amount of tax has been paid by the employer under that rule in respect of that month give a notice under paragraph (1) of this rule and thereupon this rule shall have effect monthly.

12.

For purposes of the recovery of tax which an employer would have Recovery of tax.

been liable to pay under rule 10 had he complied with the provisions of these Rules, that employer shall be deemed to have been appointed an agent of his employee under section 96 of the Act.

13.

(1) Not later than two months after the end of each year an employer Return by employer shall render to the Commissioner at end of each year.

(a) a statement and declaration in the form that the Commissioner may provide or authorize in respect of each employee employed at any time during that year, showing such particulars as the Commissioner may require; (b) such free monthly personal relief notications used by the employer during the year as the Commissioner may direct; and (c) all tax deduction cards used by the employer during the year (including those tax deduction cards which the employer may have submitted during the year for reason of arithmetical errors or other incorrect entries) which shall show, in addition to the particulars required by rule 7, such other particulars as the Commissioner may direct.

(2) An employer who fails, within two months after the end of a year, to pay as the Commissioner has directed the tax deducted which he would have been liable to pay under rule 10 had he complied with the provisions of these Rules, shall be guilty of an offence.

(3) If an employer ceases to carry on business before the end of a year he shall carry out the requirements of this rule within one month of cessation.

14.

(1) An employer, when called upon to do so by the Commissioner, Inspection of shall produce, in English or any other language which the Commissioner may employers records.

allow, for inspection, at the employers premises or at any other place the Commissioner may require (a) all wages sheets, salary vouchers, and other books, documents and records whatever relating to the calculation or payment of the emoluments of his employees in respect of the years or months specied by the Commissioner, or to the deduction of tax by 254 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] reference to those emoluments; or (b) any of those wages sheets, salary vouchers and other books, documents and records which may be specied by the Commissioner.

(2) The Commissioner may, on the occasion of an inspection under this rule, prepare a certicate, by reference to the information obtained from the inspection, showing (a) the tax which it appears from the documents and records so produced that the employer would have been liable to pay under rule 10 for the years or months covered by the inspection had he complied with the provisions of these Rules; (b) the tax which, to the best of his knowledge and belief, has not been paid as the Commissioner has directed.

(3) The production of the certicate mentioned in paragraph (2) shall be sufcient evidence that the employer is liable to pay, in respect of the years or months mentioned in the certicate, the amount shown therein pursuant to paragraph (2)( b), and a document purporting to be such a certicate shall be deemed to be such a certicate until the contrary is proved.

Death of employer 15.

If an employer dies, anything which he would have been liable to do under these Rules shall be done by his personal representatives, or, in the case of an employer who paid emoluments on behalf of another person, by the person succeeding him, or if no person succeeds him, the person on whose behalf he paid those emoluments.

Change of employer.

16.Where there has been a change in the employer from whom an employee receives emoluments in respect of the same employment, the employer after the change shall, in relation to a matter arising after the change, be liable to do anything which the employer before the change would have been liable to do under these Rules if the change had not taken place, but the employer after the change shall not be liable for payment of tax which was deductible from emoluments paid to the employee before the change took place.

Penalty.

17.A person guilty of an offence under these Rules shall be liable to a ne not exceeding ten thousand shillings, or to imprisonment for a term not exceeding six months or to both.

L.N.

6/1974, ThE INCOME TAx (DISTRAINT) RulES Rev.

2012] 255 Income Tax CAP.

470 [Subsidiary] 1.

These rules may be cited as the Income Tax (Distraint) Rules.

L.N 74/2000, L.N.

83/2008.

2.

In these Rules, unless the context otherwise requires distrainee means the debtor named in an order; distraint agent means a person appointed as a distraint agent under rule 3; distress means a distress levied pursuant to an order; distress debt means the amount of tax, and interest charged thereon, specied in an order; distrainor means an ofcer in the service of the Income Tax Department who is authorized to levy distress; goods means movable property of a distrainee (other than growing crops and goods which are liable to perish within ten days of attachment) which is liable under the law to attachment and sale in execution of a decree of a court; order means an order issued by the Commissioner under section 102 of the Act.

3.

The Commissioner may appoint distraint agents to assist distrainors in the execution of orders, but no person shall be appointed a distraint agent unless he satises the Commissioner (a) that he is of good repute and nancial standing; (b) that he is qualied under the law relating thereto to levy distress by way of attachment of movable property in execution of a decree of a court; and (c) that he has contracted a policy of insurance in an adequate sum against theft, damage or destruction by re of goods which may be placed in his custody by reason of the performance by him of his duties as a distraint agent.

4.

(1) A distraint agent shall, on appointment, furnish the Commissioner with security, by means of a deposit or in such other manner as the Commissioner may approve, in the sum of ten thousand shillings, and that security shall be refunded or cancelled on the termination of the appointment of the agent unless it is forfeited under this rule.

(2) If a distraint agent is convicted of an offence involving fraud or dishonesty in connection with the functions performed by him as an agent, the court by which he is convicted may make an order as to the forfeiture of the security or part thereof furnished by him under paragraph (1), and the provisions of the Criminal Procedure Code, in so far as they relate to forfeiture Cap.

75.

256 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] of recognizances, shall apply mutatis mutandis to the forfeiture of security under this rule.

5.

(1) An order may be executed at any time after it has been duly served on the distrainee in the manner provided by rule 6.

(2) An order shall be executed by attachment of such goods of the distrainee as, in the opinion of the distrainor, are of a value which, on sale by public auction, would realize a sum sufcient to meet the distress debt and the costs and expenses of the distress incurred by the distrainor.

6.

(1) An order shall be issued by the Commissioner in duplicate and service thereof shall be effected by service by the distrainor of a copy of the order on the distrainee in person or, if after using all due and reasonable diligence, the distrainee cannot be found, by service of a copy on an agent of the distrainee empowered to accept service, or on an adult member of the family of the distrainee who is residing with him.

(2) A person served with a copy of an order under this rule shall endorse on the order an acknowledgement of service and if that person refuses to make endorsement the distrainor shall leave the copy of the order with that person after stating in writing thereon that the person upon whom he served the order refused to sign the acknowledgement and that he left, at the time, date and place stated therein, a copy of the order with that person and the name and address of the person (if any) by whom the person on whom the order was served was identied, and thereupon the order shall be deemed to have been duly served.

(3) ( Deleted by L.N.

83/20008.).

7.

(1) In executing distress the outer door of a dwelling-house shall not be broken open unless that dwelling-house is in the occupancy of the distrainee and he refuses or in any way prevents access thereto, but when the distrainor or distraint agent executing distress has duly gained access to a dwelling-house he may break open the door of any room in which he has reason to believe goods of the distrainee to be.

(2) Where a room in a dwelling-house is in the actual occupancy of a woman who, according to her religion or local custom does not appear in public, the distrainor shall give notice to that woman that she is at liberty to withdraw, and after allowing reasonable time for her to withdraw and giving her reasonable facility for withdrawing he may enter that room for the purpose of attaching goods therein, using at the same time every precaution consistent with these provisions to prevent their clandestine removal.

8.

As soon as practicable after the attachment of goods under these Rules, the distrainor or distraint agent shall (a) issue a receipt in respect thereof to the distrainee; (b) forward to the Commissioner a report containing an inventory of all items attached, the value of each item as estimated by the distrainor Rev.

2012] 257 Income Tax CAP.

470 or distraint agent, the address of the premises at which the goods [Subsidiary] are kept pending sale, the name and address of the distraint agent in whose custody the goods have been placed and the arrangements, if any, made or to be made for the sale by public auction of the goods on the expiration of ten days from the date of attachment.

9.

On the sale by public auction of goods attached under these Rules the distrainor shall cause the sale to be stopped when the sale has realized a sum equal to or exceeding the distress debt and the costs and expenses incurred by the distrainor, and thereupon those goods remaining unsold shall at the cost of the distrainee be restored to the distrainee.

10.

Immediately after the completion of sale by public auction of goods attached under these Rules, the distrainor shall make a return to the Commissioner specifying the items which have been sold, the amounts realized by the sale and the manner in which the proceeds of the sale were applied.

11.

(1) Where a distrainee has, within ten days of attachment of his goods, under these Rules, paid or given security accepted by the Commissioner for the whole of the tax due from him together with the whole of the costs and expenses incurred by the distrainor in executing the distress, the distrainor shall at the cost of the distrainee forthwith restore the attached goods to the distrainee and return the order to the Commissioner who shall cancel it.

(2) A sum paid by a distrainee under this rule shall be applied by the Commissioner rst in settlement of the costs and expenses incurred by the distrainor and as to the balance, if any, in settlement of the distress debt or such part thereof as the Commissioner shall direct.

12.

Where goods attached under these Rules include livestock, the distrainor may make appropriate arrangements for the transport, safe custody and feeding of the livestock and any costs expenses incurred thereby shall be recoverable from the distrainee under rule 9 or 11, as the case may be, as costs and expenses incurred by the distrainor.

13.

In addition to a claim for other costs and expenses which may be incurred by the Commissioner or the distrainor in levying distress under these Rules there may be claimed by the distrainor and recovered under rule 9 or 11, as the case may be, costs at the rate specied in the Schedule.

14.

The maximum rates of remuneration which a distraint agent shall be entitled to demand from the distrainor for his assistance in executing a distress under these Rules, and which may be recovered by the distrainor under rule 9 or 11, as the case may be, shall be those specied in the Schedule.

15.

The maximum rate of commission to be paid to an auctioneer by the distrainor as remuneration for his services for the sale by public auction of goods attached under these Rules, and which may be recovered by the distrainor under rule 9, shall be ve per cent of the amount realized on the sale, and where an auctioneer has also rendered services as a distraint agent, he shall be entitled, in addition to a commission under this rule, to remuneration for those services 258 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] as provided in rule 14.

16.

The rates of remuneration specied in the Schedule shall be deemed to include all expenses of advertisements, inventories, catalogues, insurance and necessary charges for safeguarding goods attached under these Rules.

SCHEDULE RATES OF REMUNERATION 1.

Distrainors Charges Where no distress is levied and distress debt and costs and expenses incurred by the distrainor are paid by the distrainee on demand or within thirty minutes thereafter the distrainee shall pay the distrainor the following costs Shs.

(a) Where distress debt does not exceed Shs.

3, 000.

300 (b) Where the distress debt exceed Shs.

3, 000.

120 2.

Distraint Agents Charges (a) Where no distress is levied and the distress debt and costs and expenses incurred by the distrainor are paid by the distrainee on demand or within thirty minutes thereafter the distraint agent shall be entitled to a remuneration of.120 (b) For attaching goods or attaching and keeping possession thereof for ten days or part thereof, when the estimated value of the property, or the distress debt and costs and expenses, whichever is less (i) does not exceed Shs.

30,000.

.

Four per cent thereof (ii) exceed Shs.

30,000.

.

Three per cent thereof (c) Where the goods or part thereof are sold by public auction, the dis5traint agents charges shall instead be calculated in the manner directed in paragraph (b) above by reference to the total amount realized on sale after deduction of the auctioneers commission under regulation 15.

Rev.

2012] 259 Income Tax CAP.

470 (d) For keeping possession of any attached goods [Subsidiary] after the expiration of ten days from the date of 1 attachment for each day, or part thereof.

/ per cent 4 of the value of the goods with with a maximum of Shs.

60 (e) Reasonable expenses incurred by the distraint agent in transporting goods attached, and such travelling expenses by car, or a rateable proportion thereof, as the Commissioner may approve.

THE INCOME TAX (PRESCRIBED DWELLING-HOUSE) RULES L.N.

8/1974, 1.

These Rules may be cited as the Income Tax (Prescribed Dwelling- L.N.

266/1986.

House) Rules.

2.

For the purposes of paragraph 5(1)(b) of the Second Schedule Cap.

226.

to the Act the conditions with which a dwelling-house shall conform in order to be a prescribed dwelling-house shall be that the dwelling- house is certied by a Labour Ofcer, as dened in section 2 of the Employment Act, as having been provided under section 9 of that Act.

THE INCOME TAX (RETIREMENT BENEFIT) RULES, 1994 L.N.

318/1974, L.N.

50/1980, L.N.

232/1988, L.N.

239/1991 L.N.

136/1992, L.N.

70/1993, L.N.

197/1994, L.N.

211/1995, L.N.

124/1996, L.N.

74/2000, L.N.

99/2001, L.N.

98/2002, L.N.

55/2004, L.N.

52/2005, L.N.

79/2008.

1.

These Rules may be cited as the Income Tax (Retirement Citation.

Benet) Rules, 1994, and shall come into operation on 17th June, 1994.

2.

(1) In these Rules, unless the context otherwise requires Interpretation.

260 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] employee means an employee participating in a registered scheme; employer means a person carrying on a business wholly or partly in Kenya in connection with which a scheme is established; pension includes a pension from employment and a retirement annuity; scheme regulations means the regulations specically governing the constitution and administration of a particular scheme; trustee includes a person having the management or control of a fund or scheme.

(2) For the purposes of this rule and rules 8 and 9, scheme means a pension fund, pension scheme, an individual retirement fund, a provident fund or trust fund.

Existing schemes.

3.

Subject to these Rules, a pension fund, pension scheme or provident fund which was established in Kenya and approved for the purposes of the Management Act, or a trust scheme or annuity contract approved for the purposes of the Management Act, shall be deemed respectively to be a registered pension scheme, registered pension scheme, registered provident fund, registered trust scheme and registered annuity contract for the purposes of the Act.

Registration of 4.

A pension fund to which rule 3 does not apply shall, upon application pension funds.

being made under rule 8, be registered by the Commissioner for the purposes of the Act if he is satised that it (a) is registered with the Retirement Benets Authority; and (b) provides that all moneys payable thereunder shall be paid in Kenya; and (c) provides that no payment thereunder shall be made to the employer without the written consent of the Commissioner; and (d) provides that in the case of a dened contribution pension fund, where a surplus is identied by the audit required under subparagraph (j)(i), such surplus shall be allocated the respective accounts of the members of the fund in lieu of new contributions by the employer in the year and subsequent years until the surplus is exhausted and such allocation of surplus shall be deemed to be contributions by the employer; and (e) (Deleted by L.N.

79/2008.); (f) provides that the payment of pension shall not commence (i) until the retirement of the employee from service with the em- ployer on or after the employee attains the age of fty years; or (ii) except upon earlier retirement on account of inrmity of mind Rev.

2012] 261 Income Tax CAP.

470 or body; or [Subsidiary] (g) ) does not provide for the payment of sums on the death of an employee except a lump sum payable to the estate, or a lump sum or an annuity or both whether directly or indirectly payable to the widow or widower or dependants, of that employee; and (h) does not provide for the payment of an annuity, to the widow or widower of an employee, other than annuity for a term certain or during the life of that widow or widower or during the minority of a dependant of that employee; and (i) provides that, all benets derived from contributions made by an employee shall vest immediately in the employee; and (j) provides that (i) in the case of a dened contribution pension fund, an audit shall be carried out once every year during which all assets shall be valued at their current market prices and all surplus funds not allocated to the account of a member of the fund identied: Provided that, where the fund makes provision for a reserve fund, the amount of this reserve fund that does not exceed ten per cent of the market value of the assets may be excluded from the surplus funds not allocated to the to the account of the member of the fund; (ii) in the case of a dened benet pension fund, an actuarial inves- tigation shall be carried out by an actuary at least once every three years beginning from 1st January, 1995 during which any actuarial deciency or surplus in the fund shall be determined; (iii) the audited accounts or the actuarial report as the case may be, shall be sent to the Commissioner of Income Tax, the Commis- sioner of Insurance and all members of the fund shall be notied of the availability of the audited accounts or actuarial report for scrutiny at the ofces of the fund manager not later than thirty days from the date of the completion of the audit, or report; and; (iv) any surplus funds identied shall appropriately be allo- cated to the respective accounts of the members, and upon the fund being wound up, the surplus funds shall be deemed to be the funds of the employer, unless the trust deed of such scheme species otherwise, and shall be required to be withdrawn and charged to tax in the hands of the employer.

(k) provides that, in the case of a dened contribution pension fund that maintains a reserve fund, a beneciary shall receive a share of the reserve fund upon being awarded benets in respect of retirement, disability or death, as the case may be, in proportion to the value that the funds allocated to the account of the beneciary bears to 262 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] the value of the funds allocated to the accounts of all beneciaries of the fund at that time.

Registration of 5.

A provident fund to which rule 3 does not apply shall, upon application provident funds.

being made under rule 8, be registered by the Commissioner for purposes of the Act if he is satised that it (a) is registered with the Retirement Benets Authority; and (b) provides that all sums payable thereunder shall be paid in Kenya; and (c) provides that no payment thereunder shall be made to the employer without the written consent of the Commissioner; and (d) provides that in the case of a provident fund where a surplus is identied by the audit required under subparagraph (g)(i), such surplus shall be allocated to the account of members of the fund in lieu of contributions by the employer in the year and each subsequent year until the surplus is exhausted and such allocation of surplus shall be deemed to be contributions by the employer; and (e) provides that (i) the fund shall consist only of contributions by the employer in respect of his employees, and contributions by those employees, together with interest and other accrued income thereon, and securities purchased out of the fund together with the interest paid on those securities; (ii) in the case of an employee who was a member of a registered provident fund prior to 7th June, 1990, the lump sum may be paid after the completion of the specied period of service; (iii) if the employee became a member of a registered provident fund after 7th June, 1990, the lump sum shall apply only if the period of service with that employer is not less than ve years except that the lump sum may be paid on deferred basis upon the employee attaining the age of fty years; and (iv) notwithstanding that the conditions set in subparagraphs (ii) and (iii) have not been satised, a contributing employee who is a member of a registered provident fund may receive the full amounts payable after attaining the age of fty-ve years or such earlier age as the Commissioner may permit but not before he attains the age of forty years; and (f) provides that all benets derived from contributions made by an employee shall vest immediately in the employee; and (g) provides that Rev.

2012] 263 Income Tax CAP.

470 [Subsidiary] (i) an audit shall be carried out once every year during which all assets shall be valued at their market prices and all surplus funds not allocated to the accounts of a member of the fund identied: (ii) the audited accounts shall be sent to the Commissioner of Income Tax, the Commissioner of Insurance, and all members of the fund notied of its availability for scrutiny at the ofces of the fund manager, not later than thirty days from the date of completion of the audit; and (h) provides that, in the case of a provident fund that maintains a reserve fund, a beneciary shall receive a share of the reserve fund upon being awarded benets in respect of retirement, disability or death, as the case may be, in proportion to the value that the funds allocated to the account of the beneciary bears to the value of the funds allocated to the accounts of all beneciaries of the fund at that time.

6.

An individual retirement fund shall, upon application being made under rule Registration of 8, be registered by the Commissioner for the purposes of this Act if he is satised that it individual retirement funds.

(a) is registered with the Retirement Benets Authority; and (b) provides that all sums payable thereunder shall be paid in Kenya; and (c) provides that the only contributions received shall be (i) funds transferred from another registered fund or registered indi- vidual retirement fund under section 22A( 5) of the Act where the Commissioner has been duly informed of the transfer of funds; or (ii) contributions by or on behalf of an individual who quali- es for a deduction under section 22B of the Act; and (d) provides that the fund shall be invested in qualifying assets; and (e) provides that no loan or other benet shall be provided out of the fund to the beneciary or any person not dealing at arms length with that beneciary; and (f) provides that an individual beneciary can direct that all funds in his individual retirement fund be transferred to another such account with the same or another qualied institution without unreasonable delay and with notication of the Commissioner; and (g) provides that the payment of pension shall not commence until retirement after the attainment of the age of fty years or upon earlier retirement on the grounds of ill-health or inrmity of body 264 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] or mind or on leaving the country permanently; and (h) (Deleted by L.N.

55/2004.); (i) provides that upon the death of the beneciary the funds shall be distributed or transferred as legally required; and (j) provides that all benets derived from contributions by or on behalf of an individual shall vest in that individual immediately.

Discretionary .7.

The Commissioner may, subject to such conditions as he thinks t, registration.

register, for the purposes of the Act, another pension fund or provident fund which does not fully comply with every requirement of rule 4, 5 or 6 but which in his opinion substantially so complies.

Registration 8.

(1) Application for the registration of a scheme under rule 4, 5, 6 or procedure.

7 shall be made by the trustee of the scheme to the Commissioner in writing accompanied by two copies of the trust deed or other documents constituting the scheme and the scheme regulations.

(2) The Commissioner shall, as soon as practicable after considering the application, notify the trustee in writing whether the scheme is acceptable for registration, and the same notication shall specify either (a) the reason therefor, if it is not acceptable; or (b) the year of income in respect of which the registration is rst to take effect, if it is so acceptable.

Alteration of 9.

Where an alteration is made to scheme regulations, the trustee of the regulations to be scheme shall immediately inform the Commissioner in writing thereof and notied.

such alteration shall not be effective unless written approval is received from the Commissioner.

Withdrawal of 10.

(1) The Commissioner may at any time, by notice in writing to the registration.

trustee of a scheme, withdraw the registration of (a) a registered pension fund (whether registered under rule 3 or rule 4) the scheme regulations whereof have been so altered or breached that he is satised on reasonable grounds that the scheme no longer meets the requirements of rule 4; or (b) a registered provident fund (whether registered under rule 3 or rule 5) the scheme regulations whereof have been so altered or breached that he is satised on reasonable grounds that the scheme no longer meets the requirement of rule 5; or (c) a registered individual retirement fund the scheme regulations whereof have been so altered or breached that he is satised Rev.

2012] 265 Income Tax CAP.

470 on reasonable grounds that the scheme no longer meets the [Subsidiary] requirements of rule 6; or (d) a scheme registered under rule 7 which he is satised on reasonable grounds no longer meets the requirements of that rule or which has failed or ceased to fulll any conditions of registration imposed under that rule; or (e) a registered pension scheme or registered trust scheme the scheme regulations whereof have been so altered or breached that he is satised on reasonable grounds that the scheme no longer fullls the conditions under which it was approved under the Management Act except where those conditions have been varied by these Rules; or (f) a scheme the accounts of which fail or cease to be maintained to the satisfaction of the Commissioner.

(2) A withdrawal of registration under this rule shall take effect from the beginning of the year of income in which the grounds for that withdrawal arose or such later date as the Commissioner may determine.

11.

The Income Tax (Retirement Benet) Rules, (1993) are revoked.

L.N.

70/1993.

Revocation.

THE INCOME TAX (REGISTERED HOME OWNERSHIP SAVINGS PLAN) RULES, 1995 L.N.

210/1995, 1.

These Rules may be cited as the Income Tax (Home Ownership Savings L.N.

82/2007.

Plan) Rules, 1995, and shall come into operation on the 1st January, 1996.

Citation and commencement.

2.

In these Rules, unless the context otherwise requires Interpretation.

institution means an approved institution operating a home ownership savings plan registered in accordance with these Rules; Plan means a home ownership savings plan; qualifying deposits means (i) funds transferred from another Plan under section 22C of the Act; or, (ii) any deposits which qualify for a deduction under section 266 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] 22C of the Act.

Application for 3.

(1) An approved institution offering a home ownership savings plan registration.

to depositors may apply to the Commissioner for registration of the Plan for the purposes of the Act (2) An application under this rule shall (a) be made in writing addressed to the Commissioner; (b) be signed by two of the ofcials of the approved institution; (c) be accompanied by two certied copies of either the trust deed, or any rules or other document constituting the plan.

Requirements for 4.

The Commissioner may, on receipt of an application under rule 3, registration.

register a Plan if (a) it is established in Kenya under and; (b) the trust deed, rules or other document constituting the Plan provide that (i) all sums held on account of a depositor shall be used to purchase or construct a permanent house in Kenya; (ii) no deposit made or benet accruing or payable to the depositor shall be pledged as security for a loan or shall be capable of assignment unless the depositor dies; (iii) upon the death of the depositor, the balance of the funds in his ac- count shall be transferred to his spouse, any of his children who have attained the age of eighteen years or any relative of the de- positor who is qualifying individual without closing the account; (iv) only qualifying deposits may be made by a depositor under the Plan; (v) (Deleted by L.N.

82/2007.); (vi) no loan or other benet shall be provided out of the account to the deposit or to any person not dealing at arms length with the depositor; (vii) a depositor may, subject to the approval of the Commissioner, direct that all funds held in his account be transferred to another institution operating a similar Plan without undue delay; (viii) the depositor may at any time on or before the ninth year after the qualifying year withdraw all the sums deposited without deduction of tax to purchase or construct a permanent house Rev.

2012] 267 Income Tax CAP.

470 for his occupation: [Subsidiary] Provided that any excess amount of the withdrawal not used for the purchase or construction of the house shall be subject to tax; (ix) in every year starting with the qualifying year up to the tenth year the depositor shall make in his account an annual deposit of up to thirty thousand shillings; (x) upon the death of the depositor, any funds held in his account shall be transferred as provided in these Rules and any sums not applied towards the purchase or construction of a permanent house shall be subject to tax; (xi) in the case of expenditure on an existing house, no distinction shall be made between the value of the existing building and the land on which it stands; (xii) in the case of the construction of a house, qualifying expendi- ture shall consist of construction services and building material supported by such evidence as the Commissioner may require; (xiii) all funds in a depositors account shall be withdrawn as a lump sum by the end of the ninth year following the qualifying year.

5.

The Commissioner shall, as soon as reasonably practicable after considering the application, notify the applicant in writing Notication of whether or not the Plan is acceptable for registration, and the same registration.

notication shall specify either (a) the reason therefore, if it is not acceptable; or (b) the year of income in respect of which the registration is rst to take effect, if it is acceptable.

6.

An institution shall, in respect of every depositor saving under a Plan, Supply of forward to the Commissioner information to the (a) the personal identication number of the depositor; Commissioner.

(b) a certied copy of an afdavit sworn by the depositor conrming that he does not directly or indirectly own and has not previously directly or indirectly owned any interest in a permanent house; (c) the amount of deposits, mode of investment and any withdrawals thereof; (d) such other information as the Commissioner may from time to time require.

268 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] Alteration of trust 7.

Where an alteration is made to the trust deed, the rules or other deed, rules, etc.

document constituting the Plan, the institution shall forthwith notify the Commissioner in writing and such alteration shall not be effective unless written approval thereof is received from the Commissioner.

Withdrawal of 8.

(1) The Commissioner may, by notice in writing to the institution, registration.

withdraw the registration of a Plan if (a) the provisions of the trust deed, the rules or other document constituting the Plan have either been breached or so altered that the Plan no longer meets the requirements of the Act or these Rules; or (b) the accounts of the Plan fail or cease to be maintained to the satisfaction of the Commissioner.

(2) A withdrawal of registration under this rule shall take effect from the beginning of the year of income in which the grounds for that withdrawal arose or such later date as the Commissioner may determine, and the accumulated funds thereof shall be taxed in the year in which the registration is withdrawn.

L.N.

72/1996.

THE INCOME TAX (INVESTMENT DUTY SET OFF) RULES, 1996 (Revoked by L.N.

92/2009).

L.N.

103/1997, THE INCOME TAX (VENTURE CAPITAL ENTERPRISE) L.N.

31/2008, RULES, 1997 L.N.

82/2008.

Citation and 1.

These Rules may be cited as the Income Tax (Venture Capital Enterprise) commencement.

Rules, 1997 and shall be deemed to have come into operation on 1st September, 1996.

Interpretation.

2.

In these Rules, unless the context otherwise requires eligible activities means activities other than those listed in rule 4 of these Rules; fund manager means a person licensed by the Capital Markets Authority under the provisions of the Capital Markets Authority Act for the purpose of managing a venture capital enterprise; venture capital enterprise means a company incorporated in Kenya for the purpose of investing in a new or expanding venture capital enterprise.

Registration of 3.

A venture capital enterprise shall, upon application under rule 5, be venture capital registered by the Commissioner for the purposes of this Act if the Commissioner Rev.

2012] 269 Income Tax CAP.

470 [Subsidiary] is satised that enterprises.

(a) it is incorporated in Kenya; and (b) it is incorporated for the purpose of investing in new or expanding venture capital enterprises; and (c) it is registered by Capital Markets Authority; and (d) it is managed by a fund manager; and (e) seventy-ve percent or more of its portfolio of investable funds is invested by way of equity or quasi-equity investment in venture capital enterprises; and (f) the primary activities of the venture capital enterprise in which it has invested are approved activities.

4.

The primary activities of a venture capital enterprise shall not include Prohibited activities.

(a) trading in real property; (b) banking and nancial services; or (c) retail and wholesale trading services 5.

(1) An application for registration of a venture capital enterprise Registration under rule 3 shall be made in writing and shall be accompanied by procedure.

(a) two copies each of the companys (i) memorandum and articles of association; (ii) certicate of incorporation; (iii) certicate of registration by the Capital Markets Authority; (iv) Personal Identication Number Card; (c) the fund managers licence under the Capital Markets Authority act; (d) any other information as may be required by the Commissioner.

(2) The Commissioner shall, as soon as practicable after considering the application, notify the fund manager in writing whether the venture capital company is acceptable for registration, and the same notication shall specify either 270 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] (a) the reason thereof, if it is not acceptable; or (b) the year of income in respect of which the registration is rst to take effect, if it is so acceptable.

Withdrawal of 6.

(1) The Commissioner may at any time, by notice in writing to the Registration.

fund manager, withdraw the registration of a venture capital company if in the opinion of the Commissioner, that Venture Capital Company no longer qualies for registration under these rules.

(2) A withdrawal of registration under this rule shall take effect from the beginning of the year of income in which the grounds for that withdrawal arose or such later time as the Commissioner may determine.

L.N.

100/2001, THE INCOME TAX (WITHHOLDING TAX) RULES 2001 L.N.

96/2002, L.N.

54/2004.

1.

The Rules may be cited as Income Tax (Withholding Tax) Rules, 2001.

Citation and commencement.

Interpretation.

2.

In these Rules, unless the context otherwise requires Commissioner includes an ofcer authorized in writing by the Commissioner to exercise the powers or to perform functions conferred upon the Commissioner under these Rules; payee means a person who receives income from a payer after deduction of withholding tax; payer means a person who deducts withholding tax for the purposes of these Rules; withholding tax means tax subject to deduction as determined in accordance with the provisions of the Act and these Rules; withholding tax rate means the respective rate of tax set out in the Third Schedule as applicable to the specied class of income; withholding tax deduction card means a deduction card, in such form as the Commissioner may provide, or such other document corresponding to a withholding tax deduction card as may be authorized by the Commissioner in any particular case, and on which the information that the Commissioner may direct with respect to tax is recorded.

Application of 3.

Section 128 of the Act shall apply to a notice or other document which Section 128 of the is authorized or required to be given, served or issued by the Commissioner Act.

under these Rules.

Deduction of 4.

(1) A person who makes a payment of, or on account of, any income Rev.

2012] 271 Income Tax CAP.

470 which is subject to withholding tax shall deduct tax therefrom in the amount [Subsidiary] withholding Tax.

specied (a) under paragraphs 3 and 5 of Head B of the Third Schedule; and (b) where the Government of Kenya has double taxation agreement with the Government of another country, in the terms of that agreement: Provided that the rates of tax under this paragraph shall not exceed the rates specied under paragraph (a).

(2) A person who fails to comply with the requirement of paragraph (1) commits an offence.

5.

(1) On the occasion of making a payment, a person shall keep a record Maintenance of in respect of, name of payee, Personal Identication Number (PIN), gross records.

amount paid, nature of payment and amount of tax deducted.

(2) A person shall, on the tax deduction card or such other document as may be authorized by the Commissioner, record such particulars as the Commissioner may direct in respect of that payment.

(3) Any person who fails to comply with paragraph (1) or (2) commits an offence.

6.

Upon making a payment and deducting withholding tax in any month, Certicate of tax the person making the payment shall furnish the payee with a certicate showing deduction.

the gross amount paid, the total tax deducted and such other particulars as the Commissioner may require.

7.

(1) If a person to whom payment is made under paragraph 6 is Dispute in calculation aggrieved by reason of the nature of a payment and the rate of withholding tax of withholding tax.

applied and is unable to reach an agreement with the payer (a) the payer may inform the payee of his rights under this rule and shall, at the request of the payee, furnish him with a written statement showing the manner in which the payer calculated the tax deducted; (b) The payee may give a notice of objection in writing to the Commissioner, but that notice shall be valid only if (i) it states precisely the grounds of his objection; (ii) there is enclosed therewith the written statement furnished by the payer; and (iii) it is received by the Commissioner within thirty days of the date on which the statement from the payer under paragraph (a) was received by the payee.

272 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] (2) On receipt of a notice of objection under this rule, the Commissioner shall consider the objection and, subject to and in accordance with these rules, may amend the calculation or reject the objection.

(3) The Commissioner shall notify the payer and the payee in writing of his decision on the objection and thereafter, on the occasion of making payment to the payee the calculation of the tax shall be in accordance with that decision.

(4) Notwithstanding that a valid objection has been made, on the occasion of making a payment to the payee from which tax is to be deducted in accordance with these rules, the amount of tax to be deducted shall be in accordance with the calculation made by the payer until the payer is notied by the Commissioner of his decision on the objection.

(5) Any amount of tax in excess of the amount found to be payable upon calculation by the Commissioner under paragraphs (3) and (4) shall be refunded to the payee.

Payment of 8.

(1) On or before the twentieth day of the month following the month withholding tax.

in which the deduction is made or before such other day as may be notied to him by the Commissioner, a person shall, subject to subparagraph (3), pay to the Commissioner or to such other person as the Commissioner may direct, all amounts of tax deducted in accordance with the Act and these rules.

(2) The tax remitted shall be accompanied by an appropriate return showing the name of the payee, the gross amount of payment, the amount of tax deducted and such other information as the Commissioner may specify.

(3) Where no withholding tax is deducted, a person shall furnish the Commissioner with a certicate, in such form as the Commissioner may prescribe, showing that no tax was deducted in that month.

(4) A person whom the Commissioner has, under paragraph (1), directed to receive withholding tax on his behalf shall keep a record of payment in such form as the Commissioner may direct and shall enter therein particulars of all tax paid to him.

Person failing to pay tax or provide required certicate.

(5) A person who, having deducted tax under these rules, fails to remit tax within the time prescribed under this rule, account for such tax deducted or who fails to comply with paragraph (2), commits an offence.

Person failing to 9.

(1) If, on the twentieth day following the month in which the pay tax or provided deduction is made or before such later day as may have been notied to him by the Commissioner, a person has paid no tax under rule 8(1) for that month required certicate.

and the Commissioner is unaware of the amount, if any, which the person is liable to pay, or the person has failed to provide the certicate mentioned in paragraph (3) of that rule, the Commissioner may give notice to the person requiring him to render within the time specied in the notice, a return showing the name of every person to whom he made any payment which is subject to withholding tax in the period stated in the notice, together with particulars Rev.

2012] 273 Income Tax CAP.

470 with regard to each person that notice may require, being particulars of [Subsidiary] (a) a calculation of tax under rule 4 appropriate to each persons case; (b) the payment of amounts subject to withholding tax made to that other person during that period; and (c) any other matter affecting the calculation of the tax which the person was liable under these rules to deduct from the payments subject to withholding tax during that period.

(2) The Commissioner shall ascertain and certify to the best of his knowledge and belief the amount of tax which the person would have been liable to pay under rule 8 in respect of that period in question had he complied with the provisions of these rules.

(3) The production of the return made by the person under paragraph (1), and of the certicate of the Commissioner under paragraph (2), shall be sufcient evidence that the amount shown in the certicate is the amount of tax which the person would have been liable to pay under rule 8 in respect of the period in question had he complied with the provisions of these rules and a document purporting to be such a certicate shall be deemed to be such a certicate until the contrary is proved.

(4) Where a notice given by the Commissioner under paragraph (1) extends to two or more consecutive months, these rules shall have effect as if those consecutive months were one month.

(5) If the Commissioner is not satised that the amount of tax paid in respect of a period is the full amount which the person would have been liable to pay under rule 8 had he complied with these rules, he may notwithstanding that an amount of tax has been paid by the person under that rule in respect of that period give a notice under paragraph (1) of this rule and thereupon this rule shall have effect in the subsequent periods.

10.

For the purpose of the recovery of tax which a person would have Recovery of tax.

been liable to pay under rule 8 had he complied with the provisions of these rules, that person shall be deemed to have been appointed an agent of his payee under Section 96 of the Act.

11.

(1) Not later than two months after the end of each year, a person Withholding tax shall render to the Commissioner a statement and declaration in the form that return at end of each the Commissioner may provide or authorize in respect of each person to whom year.

payment is made at any time during the year, showing such particulars as the Commissioner may require.

(2) Where a person ceases to carry on business before the end of any year of income, he shall carry out the requirements of this rule within one month of cessation.

(3) Any person who fails to render a return to the Commissioner within 274 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] two months after the end of a year as required under paragraph (1), commits an offence.

Inspection of a 12.

(1) A person liable to pay withholding tax shall, when called upon persons records.

to do so by the Commissioner, shall produce for inspection, at his premises or at any place the Commissioner may require (a) all accounts, books of accounts, documents and other records relating to the calculation of, and on account of payments which are subject to withholding tax in respect of the period which may be specied by the Commissioner; and (b) any other books, documents and records which may be specied by the Commissioner, which shall be written in English or such other language which the Commissioner may allow.

(2) The Commissioner may, on the occasion of an inspection under this rule, prepare a certicate, based on the information obtained from the inspection, showing (a) the tax which appears from the documents and records produced that the person would have been liable to pay under rule 8 for the period covered by the inspection had he complied with the provisions of these rules; (b) the tax which, to the best of his knowledge and belief, has not been paid as the Commissioner had directed.

(3) The production of the certicate referred to in paragraph (2) shall be sufcient evidence that the person is liable to pay, in respect of the period mentioned in the certicate, the amount shown therein pursuant to paragraph (2)(b), and a document purporting to be such certicate shall be deemed to be such certicate until the contrary is proved.

Death of an 13.

If an individual dies, anything which he would have been liable to individual.

do under these rules shall be done by his personal representatives, or, in the case of an individual who made payments on behalf of another person, by the person succeeding him, or if no person succeeds him, by the person on whose behalf he made those payments.

Change in 14.

Where there has been change in the payer, the payer after the change circumstances of a shall in relation to a matter arising after such change, be liable to do anything person.

which the payer before the change would have been liable to do under these rules if the change had not taken place.

Penalty for failure 14A.

For the purposes of section 35(6) of the Act, where a person, when to deduct or remit under obligation to do so fails withholding tax.

(a) to make a deduction described in section 35(6) of the Act, in accordance with rule 4; or Rev.

2012] 275 Income Tax CAP.

470 [Subsidiary] (b) to remit an amount of tax deducted, as described in section 35(6) (b) of the Act, in accordance with rule 8, the Commissioner may impose a penalty equal to ten percent of the amount of the tax involved, subject to a maximum penalty of one million shillings.

15.

A person convicted of an offence under these rules shall be liable General Penalty to a ne not exceeding one hundred thousand shillings, or to imprisonment for a term not exceeding six months, or to both.

THE INCOME TAX (LEASING) RULES, 2002 L.N.

52/2002, L.N.

69/2006, L.N.

83/2007, L.N.

81/2008, L.N.

91/2009.

1.

These Rules may be referred to as the Income Tax (Leasing) Rules, 2002.

Citation.

2.

In these Rules, unless the context otherwise requires Interpretation.

asset includes equipment, but excludes land and buildings; Commissioner includes an ofcer authorized in writing by the Commissioner to exercise the powers or to perform functions conferred upon the Commissioner under these Rules; cross-border lease means a leasing contract entered into between a person resident in Kenya and another person resident in a different tax jurisdiction; nance lease means a contract which the lessor agrees to lease assets to the lessee for a specied period of time where the risks and rewards associated with ownership of the assets are substantially transferred from the lessor to the lessee, but with the title to the assets always remaining with the lessor; hire purchase means a contract under which the lessor agrees to lease the assets to the lessee for a specied period of time, with the intention of transferring ownership on the expiry of the lease; lease means a contract by which a person owning assets grants to a lessee the right to possess, use and enjoy such assets for a specied period of time in exchange for periodic payments: Provided that any contract whose term is less than six months shall not be deemed to be a lease.

lessee means a person who leases from the owner or lessor of the 276 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] assets and in return for use of such assets pays periodic payments to the lessor; lessor means a person who leases an asset to a lessee; operating lease means a contract under which the lessor agrees to lease the assets to the lessee for specied periodical payments where the title to the assets and the risks and rewards associated with ownership substantially remain with the lessor.

3.

(1) All income accruing to a lessor from payments made in respect Income chargeable of an operating or nance lease shall be chargeable to tax in accordance with to tax.

the provisions of the Act; (2) All income accruing under paragraph (1) shall be subject to withholding tax at the rates applicable to resident or non-resident persons under the Act.

Deduction.

4.

Notwithstanding paragraph 3 (a) a lessor shall be entitled to claim a deduction (i) for the wear and tear of the leased assets in accordance with paragraph 9 of the Second Schedule to the Act; and (ii) in respect of all other expenditure incurred wholly and ex- clusively in the production of the income in accordance with section 15 of the Act.

(b) a lessee shall take as a deduction the full amount of the payments made to the lessor: Provided that a deduction under these Rules shall be granted where the Commissioner is satised (i) in the case of a lessor, that the expenditure in respect of which the deduction is sought is incurred by the lessor wholly and exclusively in the production of income chargeable to tax; and (ii) in the case of a lessee, that the sole consideration for the pay- ment in respect of which the deduction is sought is the use of, or the right to use, an asset.

Capitalization of 5.

(1) For the purposes of these Rules, assets to which these Rules relate assets.

shall be capitalized in the books of the lessor, and where the same are sold off upon the expiration of the lease, the difference between the sale price and the book value shall be deemed to be a gain or loss to the lessor, as the case may be, for purposes of assessment.

(2) Assets leased under these Rules shall not be capitalized in the books of the lessee.

Register.

6.

The lessor shall maintain a separate register for all leased assets.

Rev.

2012] 277 Income Tax CAP.

470 [Subsidiary] 7.

(Deleted by L.N.

81/2008.).

8.

(1) Where, upon termination of a lease in respect of which the lessee Where lease is is entitled to any tax deduction, and with the express or implied consent or terminated.

acquiescence of the lessor the lessee is allowed to use, enjoy or deal with the asset as the lessee may deem t (a) without the payment of any consideration; or (b) subject to the payment of any consideration which is nominal in relation to the fair market value of the asset; or (c) if the asset is transferred to the lessee passes for an amount less than the market value, the lessee shall be deemed to have acquired the asset and the Commissioner shall recover the deductions previously enjoyed by the lessee in respect of such assets with effect from the date of the commencement of the lease and appropriate adjustments made for each year of income when the lease payments were claimed.

(2) Where an acquisition is deemed under paragraph (1) the lessee shall be allowed to depreciate the amount recovered based on the wear and tear deduction applicable to the class of asset which shall be computed on the total lease payments recovered under paragraph (1), with effect from the year of income in which the lease commenced.

(3) Where a lessee is allowed wear and tear as computed under paragraph (2), similar adjustments shall be made in the tax computation of the lessor to bring to charge the wear and tear previously claimed by the lessor.

9.

(Deleted by L.N.

81/2008.).

10.

(1) Where a lessor in Kenya enters a cross-border lease, the gross Cross-border lease.

lease payments made to the lessor shall be deemed to be income chargeable to tax.

(2) Where a lessee in Kenya enters a cross-border lease, the gross lease payments made by such lessee shall be deemed to be income derived from Kenya and shall be subject to withholding tax in accordance with the Act.

THE INCOME TAX (NATIONAL SOCIAL SECURITY FUND) (EX- EMPTION) RULES, 2002 1.

These rules may be cited as the Income Tax (National Social Security L.N.

97/2002.

Fund) (Exemption) Rules, 2002 and shall come into operation on the 1st July, 2002.

Citation and commencement.

2.

In these rules, unless the context otherwise requires Interpretation.

278 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] Board of Trustees means the National Social Security Fund Board of Trustees constituted under section 4 of the National Social Security Fund Act; Cap.

258.

accounting period has the meaning assigned to it in section 2 of the Act; Commissioner means the Commissioner of Income Tax; National Social Security Fund means the National Social Security Fund established under section 3 of the National Social Security Fund Act and Fund shall be construed accordingly.

Cap.

258.

3.

The income of the National Social Security Fund shall be Conditions for exempt from income tax subject to the following conditions being Exemption.

complied with by the National Social Security Fund Board of Trustees (a) the Board of Trustees shall cause the accounts of the Fund to be audited every year; (b) the Board of Trustees shall ensure that the annual audit includes (i) the determination of the market value of the assets of the Fund; (ii) the determination of the surplus amount of the market value, not allocated to the account of a member of the Fund, excluding the reserve fund that does not exceed ten percent of the market value of the Fund in the year of audit.

(c) the Board of Trustees shall allocate the surplus amount to the respective accounts of individual members in proportion to the value of the amounts allocated to the accounts of all members of the Fund from time to time.

(d) the Board of Trustees shall cause the audit report to be published, in the Gazette and in at least two newspapers of national circulation within nine months of the end of the accounting period of the Fund and shall include a full listing of the assets of the Fund at book and market values; (e) the Board of Trustees shall submit the annual audit report to the Commissioner within nine months of the end of the accounting period to which the audit report relates.

4.

The Commissioner shall, within twelve months of the receipt of the Commissioner to Audit report under rule 3(e), send a report in writing to the Minister on the level of report to Minister.

compliance with the conditions laid down in regulation 3 by the Board of Trustees.

5.

Failure by the Board of Trustees to comply with the conditions of Penalty.

rule 3 shall cause the Board of Trustees to be liable to a penalty not exceeding ten thousand shillings for every such failure.

Rev.

2012] 279 Income Tax CAP.

470 THE INCOME TAX (REGISTERED UNIT TRUSTS/COLLECTIVE [Subsidiary] INVESTMENT SCHEMES) RULES, 2003 1.

These Rules may be cited as the Income Tax (Registered Unit Trusts/ L.N.

215/1990, Collective Investment Schemes) Rules, 2003.

L.N.

40/2003.

2.

A unit trust or collective investment scheme shall, upon application being made under rule 3, be registered by the commissioner for purposes of section 20 of the Act if he is satised that (a) the unit trust or collective investment scheme shall undertake portfolio investment in accordance with the policies and guidelines under the Capital Markets Act; Cap.

485A.

(b) the sole purpose of the unit trust or collective investment scheme is to carry on investments on behalf of the unit holders or shareholders; (c) after six months of commencement of the unit trust o collective investment scheme no unit holder or shareholder shall own or be capable of holding more than twelve and one half per cent (12 %) of the units or shares in any one unit trust or collective investment scheme; and (d) it will, within six months of its commencement and thereafter, maintain at least twenty-ve unit holders or shareholders.

3.

(1) Application for the registration of a unit trust or collective investment scheme shall be made by the manager or trustee of the unit trust or collective investment scheme to the Commissioner in writing and shall be accompanied by two copies of the trust deed and a copy of the licence issued under Capital Markets Act (2) The Commissioner shall, as soon as practicable after considering the Cap.

485A.

application, register the unit trust or collective investment scheme and notify the manager or trustee in writing the year of income in respect of which the registration is to take effect.

4.

Where unit holders or shareholders in any unit trust or collective investment scheme are exempt persons under the First Schedule to the Act, the manager or trustee of the unit trust or collective investment scheme shall maintain separate but identiable account of the funds of such persons.

5.

The Income Tax (Registered Unit Trusts) Rules, 1990, are revoked.

THE INCOME TAX (TRANSFER PRICING) RULES, 2006 L.N.

215/1990, 280 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] L.N.

52/2011.

(s.

18(8)) L.N.

67/2006.

1.

These Rules may be cited as the Income Tax (Transfer Pricing) Rules, Citation and and shall come into operation on the 1st July, 2006.

commencement.

Interpretation.

2.

In these Rules, unless the context otherwise requires arms length price means the price payable in a transaction between independent enterprises; comparable transactions means transactions between which there are no material differences, or in which reasonably accurate adjustments can be made to eliminate material differences; controlled transaction means a transaction which is monitored to ensure payment of an arms length price for goods or services; related enterprises means one or more enterprises whereby (a) one of the enterprises participates directly or indirectly in the management, control or capital of the other; or (b) a third person participates directly or indirectly in the management, control or, capital or both.

3.

The purposes of these Rules are (a) to provide guidelines to be applied by related enterprises, in determining the arms length prices of goods and services in transactions involving them, and (b) to provide administrative regulations, including the types of records and documentation to be submitted to the Commissioner by a person involved in transfer pricing arrangements.

Person to choose 4.

The taxpayer may choose a method to employ in determining the method.

arms length price from among the methods set out in rule 7.

Scope of guidelines.

5.

The guidelines shall apply to (a) transactions between related enterprises within a multinational company, where one enterprise is located in, and is subject to tax in, Kenya, and the other is located outside Kenya; (b) transactions between a permanent establishment and its head ofce or other related branches, in which case the permanent establishment shall be treated as a distinct and separate enterprise from its head ofce and related branches.

Transactions subject 6.

The transactions subject to adjustment of prices under these Rules Rev.

2012] 281 Income Tax CAP.

470 [Subsidiary] shall include to Rules.

(a) the sale or purchase of goods; (b) the sale, purchase or lease of tangible assets; (c) the transfer, purchase or use of intangible assets; (d) the provision of services; (e) the lending or borrowing of money; and (f) any other transactions which may affect the prot or loss of the enterprise involved.

7.

The methods referred to in rule 4 are the following Methods.

(a) the comparable uncontrolled price (CUP) method, in which the transfer price in a controlled transaction is compared with the prices in an uncontrolled transaction and accurate adjustments made to eliminate material price differences; (b) the resale price method, in which the transfer price of the produce is compared with the resale price at which the product is sold to an independent enterprise: Provided that in the application of this method the resale price shall be reduced by the resale price margin (the prot margin indicated by the reseller); (c) the cost plus method, in which costs are assessed using the costs incurred by the supplier of a product in a controlled transaction, with a mark-up added to make an appropriate prot in light of the functions performed, and the assets used and risks assumed by the supplier; (d) the prot split method, in which the prots earned in very closely interrelated controlled transactions are split among the related enterprises depending on the functions performed by each enterprise in relation to the transaction, and compared with a prot split among independent enterprises in a joint venture; (e) the transactional net margin method, in which the net prot margin attained by a multinational enterprise in a controlled transaction is compared to the net prot margin that would have been earned in comparable transactions by an independent enterprise; and (f) such other method as may be prescribed by the Commissioner from time to time, where in his opinion and in view of the nature of the transactions, the arms length price cannot be determined using any of the methods contained in these guidelines.

282 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] 8.

(1) The methods set out in rule 7 shall be applied in determining the Application of price payable for goods and services in transactions between related enterprises methods.

for the purposes of section 18(3) of the Act.

(2) A person shall apply the method most appropriate for his enterprise, having regard to the nature of the transaction, or class of transaction, or class of related persons or function performed by such persons in relation to the transaction.

Power of 9.

(1) The Commissioner may, where necessary, request a person to Commissioner whom these Rules apply for information, including books of accounts and to request for other documents relating to transactions where the transfer pricing is applied.

information.

(2) The documents referred to in paragraph (1) shall include documents relating to (a) the selection of the transfer pricing method and the reasons for the selection; (b) the application of the method, including the calculations made and price adjustment factors considered; (c) the global organization structure of the enterprise; (d) the details of the transaction under consideration; (e) the assumptions, strategies, and policies applied in selecting the method; and (f) such other background information as may be necessary regarding the transaction.

(3) The books of accounts and other documents shall be prepared in, or be translated into, the English language, at the time the transfer price is arrived at.

Application of arms 10.

Where a person avers the application of arms length pricing, such length pricing.

person shall (a) develop an appropriate transfer pricing policy; (b) determine the arms length price as prescribed under the guidelines provided under these Rules; and (c) avail documentation to evidence their analysis upon request by the Commissioner.

Certain provisions of 11.

The provisions of the Act relating to fraud, failure to furnish Act to apply.

returns and underpayment of tax shall apply with respect to transfer pricing.

Unpaid tax to be 12.

Any tax due and unpaid in a transfer pricing arrangement shall be Rev.

2012] 283 Income Tax CAP.

470 [Subsidiary] deemed to be additional tax for purposes of sections 94 and 95 of the Act.

deemed additional tax.

THE INCOME TAX (CHARITABLE DONATIONS) REGULATIONS, 2007 1.

These Regulations may be cited as the Income Tax (Charitable L.N.

101/2007.

Donations) Regulations, 2007, and shall be deemed to have come into force Citation.

on 1st January, 2007.

2.

In these Regulations, unless the context otherwise requires Proof of donation.

approved project means a project approved by the Minister; cash donation includes a donation given in form of a cheque; and charitable organisation means a non-prot making organization established in Kenya and which (a) is of a public character; and (b) has been established for purposes of the relief of poverty or distress of the public, or advancement of education.

3.

(1) A person who makes a claim for a donation to be allowed Donations generally.

under section 15(2)(w) of the Act shall provide proof of the donation to the Commissioner.

(2) The proof of the donation required in accordance with paragraph (1) shall be in form of a receipt issued and certied by the recipient of the donation and shall be accompanied by (a) a copy of the exemption certicate issued by the Commissioner to the charitable organization, or the Ministers approval of the project to which the donation is made; (b) a declaration from the donee that the donation shall be used exclusively for the objects of charity.

4.

For purposes of these Regulations, donations made shall (a) be in cash and shall not be repayable or refundable to the donor under any circumstance; (b) not confer any direct or indirect benet to the donor or any person associated to the donor; (c) under no circumstances be revoked once conferred upon a charitable organization, unless there is approval by the Commissioner in which case the tax arising shall be due and payable.

284 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] 5.

The receipt produced as proof of a donation shall have the following Contents of receipt details of proof.

(a) the full names and address of the donee; (b) the Personal Identication Number (PIN) of the donee; (c) date of donation; (d) purpose for which the donation was made; (e) amount of donation.

THE INCOME TAX (TURNOVER TAX) RULES, 2007 (s.

12C) Citation and 1.

These rules may be cited as the Income Tax (Turnover Tax) Rules, commencement.

2007 and shall come into operation on the 1st January, 2008.

L.N.

5/2008.

Interpretation.

2.

In these Rules, unless the content otherwise requires income from business includes gross receipts, gross earnings, revenue, takings, yield, proceeds or other income chargeable to tax under section 12C.

person includes partnership; return of income means a return of income furnished by a person under rule 9; tax period means every three calendar months commencing 1st January every year; turnover tax means tax payable under section 12C of the Act.

Persons liable to 3.

(1) Any person whose income from business exceeds ve hundred turnover tax.

thousands shillings and does not exceed ve million shillings in a year of income shall be liable to pay turnover tax.

(2) Paragraph (1) of this rule shall not apply to (a) any person whose annual income from business does not exceed ve hundred thousand shillings per year; (b) any person whose income is exempt from tax under the First Schedule to the Act; (c) any person whose income is subject to withholding tax as a nal tax.

Election to be 4.

(1) A person may elect to be exempt from the provisions of section Rev.

2012] 285 Income Tax CAP.

470 [Subsidiary] 12C of this Act.

excluded from (2) A person who elects to be exempted shall make an application for turnover.

exemption in writing to the Commissioner.

(3) Where the Commissioner approve the application for exemption, under paragraph (2), a person who has been exempted shall be subject section 3 of the Act; (4) The exemption approved by the Commissioner shall take effect in the subsequent years of income.

5.

Any income from a business that is subject to turnover tax shall not Turnover tax as a be liable to any other tax under this Act.

nal tax.

6.

A person whose income from business does not exceed or is not Registration.

expected to exceed ve million shillings per annum shall be required to apply for turnover tax registration in the prescribed form.

(2) Notwithstanding paragraph (1), a person whose income from business does not exceed ve hundred thousand shillings per annum shall not apply for registration.

(3) Where the Commissioner is satised that a person is required to be registered, the Commissioner shall issue a certicate of registration in the prescribed form.

(4) A person whose income from business falls below ve hundred thousand shillings in any year of income shall apply to the Commissioner for de-registration.

(5) Where the Commissioner is satised that the income of an applicant has fallen below ve hundred thousand shillings, the Commissioner shall de- register that person.

7.

(1) Where the income from the business of a person registered under Change of status.

rule 6 exceeds ve million shillings during a year of income, that person shall notify the Commissioner of the change of status.

(2) Where the Commissioner is satised by the notication under paragraph (1), the Commissioner shall grant approval for the change.

(3)The approval granted by the Commissioner under paragraph (2) shall be effected in the subsequent year of income.

8.

(1) A person registered under rule 6 shall be to keep records Keeping of records.

necessary for the determination and ascertainment of tax, including daily sales summary in a prescribed form and any other document or record that the Commissioner may from time to time direct to be maintained having regard to the type and nature of the business being undertaken.

(2) Notwithstanding paragraph (1), where a business is in possession of 286 CAP.

470 Income Tax [Rev.

2012 [Subsidiary] an Electronic Tax Register records as provided under the Value Added Tax Act (Electronic Tax Register) Regulations, 2004, the records shall be sufcient.

Submission of 9.

(1) A person subject to turnover shall calculate the tax due, remit the returns and payment tax due to the Commissioner by cash or bank guaranteed cheques or electronic of Tax.

fund transfers and submit a return in the prescribed form, in each tax period, to the Commissioner on or before 20th of the month following the end of the tax period.

(2) A person may remit the tax due on monthly basis and offset the tax paid in the return.

(3) Where a business does not have in come chargeable to turnover tax in any tax period, the business shall submit a nil return.

Penalties and 10.

(1) Any person who fails to submit a tax return under regulation (9) interests.

is liable to a default penalty of two thousand shillings.

(2) Any person who submits a return within the required period, but fails to pay the tax due is liable to a default penalty of two thousand shillings.

(3) Any person who fails to pay tax due, or part thereof, under rule 9 is liable to pay interest at the rate of two per centum per month, on the unpaid tax.

(4) The Commissioner (a) may remit whole or part of any penalty or late payment interest in accordance with the provisions of section 94 of this Act.

(b) shall have the powers conferred under section 123 of this Act, to refrain from assessing to tax or recovering tax any person liable to turnover tax.

Inspection of records.

11.

For purposes of obtaining full information in respect of accounting for turnover tax, the Commissioner may by notice require any person to (a) produce books and records relating to the calculation of turnover tax (b) appear at such time and place as may be specied in the notice.

Appointment of 12.

For purposes of collection, recovery and enforcement of tax, the Agents.

Commissioner may appoint any person under section 96 of the Act to be an agent.

Capital allowances.

13.

No expenditure or capital allowances shall be granted against turnover tax.

Dispute resolution.

14.

Any dispute arising from the administration of these Rules as regards any assessment to tax shall be dealt with in accordance with the provision of section 84 of the Act.

Rev.

2012] 287 Income Tax CAP.

470 [Subsidiary] GUIDELINES ON ALLOWABILITY OF BAD DEBTS (s.

15(2)(a)) L.N.

37/2011 PURSUANT to section 15(2)(a) of the Income Tax Act, the Commissioner-General issues the guidelines set out in the Schedule hereto on allowability of bad debts for tax purposes.

SCHEDULE 1.

A debt shall be considered to have become bad if it is proved to the satisfaction of the Commissioner to have become uncollectible after all reasonable steps have been taken to collect it.

2.

A debt shall be deemed to have become uncollectable under paragraph (1) where (a) the creditor loses the contractual right that comprises the debt through a court order; (b) no form of security or collateral is realizable whether partially or in full; (c) the securities or collateral have been realized but the proceeds fail to cover the entire debt; (d) the debtor is adjudged insolvent or bankrupt by a court of law; (e) the costs of recovering the debt exceeds the debt itself; or (f) efforts to collect the debt are abandoned for another reasonable cause.

3.

A bad debt shall be a deductible expense only if it is wholly and exclusively incurred in the normal course of business.

4.

For the purposes of these guidelines, a bad debt which is of a capital nature shall not be an allowable expense.

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