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KRA wants Per Diem, Overtime and other Employee Allowances Taxed

Kenya Revenue Authority (KRA) has started a crackdown on firms under-declaring their payrolls in what will see employees pay taxes on items like overtime, leave pay and per diems previously not subjected to the 30 percent Pay as You Earn (PAYE). This comes after the release of a report from the Kenya National Bureau of Statistics (KNBS) which revised the pay data for 2.9 million Kenyans employed in the formal sector for the four years to 2020 after it emerged that firms have been omitting some regular perks while reporting the workers’ payroll raising fears of tax evasion.

KRA wants companies to inform it of perks such as telephone allowances, dinner cash, and per diems in excess of Sh2,000 per day, and non-cash benefits like gym fees in excess of Sh3,000 monthly. Failure to report the hidden allowances by employers may attract a penalty of up to 25 percent of the evaded tax. KRA is further pushing companies to declare workers’ private expenditures like payment of school fees, insurance and utility bills that were met by the employer.

Taxation of employee fringe benefits is seen as a move to bring more people into the tax bracket and curb tax evasion in the quest to meet targets with KRA expected to collect Sh2.14 trillion by the end of the current financial year. Kenya made a commitment to the International Monetary Fund (IMF) to recover unpaid taxes from high-net-worth professionals and traders in an effort to raise national revenues.


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