What Is Withholding Tax?
Understanding Withholding Tax is crucial for anyone earning income from consultancy, management services, dividends, or interest in Kenya. Withholding Tax (WHT) is a retention tax. This means that a portion of your income is deducted at the source by the payer and then remitted directly to the Kenya Revenue Authority (KRA).
If you’ve ever received a payment that was 5% lower than expected, you were likely subject to WHT. Typically, iTax will issue a Withholding Certificate, reassuring you that the deduction was not a mistake, but a legal tax obligation.
Who Does Withholding Tax Apply To?
There are two key parties in the Withholding Tax process:
- Withholder: The person or entity making the payment and responsible for deducting and remitting the tax.
- Withholdee: The recipient of the income from which the tax is withheld.
WHT applies to several types of income:
- Management and professional fees
- Dividends and royalties
- Interest payments
- Winnings from betting and gaming
Rates vary based on income type and whether the recipient is a Kenyan resident or non-resident.
Is Withholding Tax Final?
Whether WHT is a final tax or advance payment depends on the type of transaction:
- For some non-residents, WHT is a final tax.
- For residents, it may serve as an advance payment toward their total income tax liability.
When filing tax returns, any withheld amount is offset against your final tax obligation. If the WHT exceeds your liability, you can claim a refund. If your liability is higher, you’ll pay the difference.
Payment and Compliance
Withholding Tax must be remitted to KRA by the 20th of the following month. The withholder must:
- Generate a payment slip on iTax
- Pay via:
- Bank (appointed KRA banks)
- M-PESA Paybill 572572, using the PRN as the account number
Once payment is complete, iTax sends a Withholding Certificate to both the withholder and the withholdee.
Filing Tax Returns with Withholding Certificates
Even if you’ve received a Withholding Certificate, you are still required to file your income tax return. Download and fill the IT1 return form on iTax, declaring:
- The income earned
- The tax withheld
Any balance must be paid by 30th April of the following year.
▶ Watch this tutorial on how to file your return
Why Withholding Tax Matters
Withholding Tax enhances government cash flow by collecting revenue in advance. It also supports source-based taxation, which means income earned in Kenya is taxable regardless of the residence of the recipient.
For businesses and individuals alike, understanding Withholding Tax ensures financial transparency, legal compliance, and smoother tax filing processes.
