New KRA PAYE Rates Apply To All Benefits And Emoluments Earned In April 2020

KRA on Thursday 7th May 2020 issued a public notice in regards to the New KRA PAYE Rates 2020. Get to know more about the KRA PAYE Rates 2020.

Most employers and employees were concerned about when the New KRA PAYE Rates were to take effect i.e. whether in April salaries or May salaries. That doubt has all been put to reset thanks to the Public Notice issued by KRA on 7th May 2020, aligning and putting into perspective the key issues in relation to the New PAYE Rates 2020.

In this article, I will be sharing the brief of the public notice by KRA in regards to the New PAYE Rates for 2020 that came into force on 25th of April 2020, after being Gazetted officially. By the end of this article, you will have understood all in regards to the PAYE Rates 2020 as both an employer and employee in Kenya. 

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Basically we shall be looking at the key takeaways from the latest public notice from Kenya Revenue Authority (KRA) in regards to the New PAYE Rates 2020. This is the definitive guide to the PAYE Rates 2020 that all employers and employes need to read and understand the analyzed public notice from Kenya Revenue Authority (KRA). 

It is important to note that PAYE (Pay A You Earn) is a monthly tax which is accounted for on a calendar month basis i.e. PAYE is filed and paid monthly on or before the 9th day of the following month. Employers are supposed to remit and pay PAYE for all their employees on or before the stipulated date. 

Kenya Revenue Authority (KRA) states that contrary to some positions published in the media, the New PAYE Rates will not apply retrospectively and will therefore not be applicable to emoluments earned from January to March 2020. This means that the new PAYE Rates for 2020 will be applicable for all emoluments and earnings earned from April 2020 to December 2020. 

The Kenya Revenue Authority (KRA) also noted that there have been wide spread misinterpretation of facts on the application of the new rates by a section of the public. Despite the Income Tax provisions contained in the Tax Laws (Amendment) Act 2020 coming into effect on 25th April, 2020, KRA clarified that the New PAYE Rates apply to all benefits and emoluments earned from the first day of April 2020 i.e. the benefits that employees got from 1st April all the way to 30th April 2020.

In KRA’s perspective, they state that they understand that there are employers who had already processed their April payrolls by the time the new provisions took effect. In regard to such situations, employers have two options to ensure that they comply with the new provisions.

Option 1: Revise Payrolls

The first option that employers in Kenya can take is to revise their payrolls to take into account the new tax rates and refund taxes over deducted to staff in case they have not yet remitted the deducted PAYE to KRA.

Option 2: Recover Over Deducted Tax

The second option applies to employers who had already deducted and remitted PAYE to KRA using the old rates. Such employers are required to recover the over deducted tax from the PAYE payable to KRA in the month of May to refund their staff.

KRA Returns Filing In 2021

Furthermore, KRA states that there will be no challenge in filing the KRA Returns for year of income 2020 as the necessary system enhancements have been done to facilitate accurate self-assessment. The only difference will be in the monthly tax relief which has now been revised from the previous Sh1, 408 to Sh2, 400. So, when 2021 reaches, then the process of filing KRA Returns for 2020 will not be affected at all. 

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The former monthly relief will apply for January to March salaries while the latter will apply from April onwards. Employers are advised to adjust this accordingly in the 2020 P9 forms. Taxpayers in the annual income tax regimes like corporate entities whose financial year ends in December will compute their taxes for the year using the respective new tax rates. On the other hand, corporate bodies whose financial year ends in March will apply the old tax rates.