How withholding tax reduces burden on taxpayers

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

02 November 2025

Two months ago, Andrew received what he describes as a shocking letter from the Kenya Revenue Authority (KRA); “I am just now recovering from the shock”, he says, adding that “KRA is demanding that I pay Sh28,000 for the income that I made in 2024 but I don’t understand how this came about.”

Andrew says that he is a “small-time consultant” and each time he gets paid, the client deducted some tax. Consequently, Andrew claims that he doesn’t owe any more. I pushed him further and established that the deductions were Withholding Taxes.

This tax is calculated at 5 per cent of the total invoice amount but it is only applicable when the total bill is Sh24,000 or more. However, this is not a final tax; it is a kind of advance tax payment which helps reduce the tax burden at the end of the financial year. The taxpayer is required to calculate the profit made and then the tax payable. The Withholding tax is subtracted from this figure and the difference paid to KRA.

In Andrew’s case, the total amount billed in 2024 was Sh398,000. Assuming that all the invoices were for more than Sh24,000, the corresponding withholding tax deducted was Sh19,900 (5pc of Sh398,000).

To work out the tax payable, we need to know the costs that Andrew incurred in carrying out his consultancy work – these would include telephone and internet expenses, travel costs when visiting the client etc. Unfortunately, Andrew did not file his tax return so, this information is not known.

In that case, KRA assumed there were no costs and treated the entire Sh398,000 as profit. This was divided into the various tax brackets as follows: The first Sh288,000 was taxed at 10pc (equals, Sh28,800), 25pc on the next Sh100,000 (equals, Sh25,000) and, finally, 30pc on the last Sh10,000 (equals, Sh3,000). The total tax due comes to Sh56,800.

KRA then subtracted the standard personal tax relief of Sh28,800 that is given to all individual taxpayers. This is how they arrive at the balance of Sh28,000. What Andrew needs to do now is file his 2024 tax return and enter all the withholding taxes that were deducted from his payments by his client. This should immediately cut the tax bill to Sh8,100 (Sh28,000 – Sh19,900). This is how withholding tax reduces the tax burden.

But, remember that we haven’t accounted for the costs of running his business. When these are included, the tax amount will go down even further.