Types of Taxes in Kenya: A Comprehensive Guide

Types of Taxes in Kenya: A Comprehensive Guide to Direct and Indirect Taxes

July 3, 2025

Understanding the types of taxes in Kenya is essential for individuals and businesses alike.

Taxation is the economic backbone of Kenya’s modern economy and is the primary source of revenue for public services and national development.

Kenya has imposed various types of taxes in a bid to widen the tax net – from VAT imposed on suppliers to PAYE charged on employees, just to name a few.

Broadly, these taxes fall into two major categories: Direct Taxes and Indirect Taxes.

In this guide, we’ll take an in-depth look at these categories, break down their traits, and give a detailed overview of the types of taxes in Kenya.

So let’s dive right in!

Key Takeaways

Kenya’s tax system is broadly categorized into Direct and Indirect taxes.
Direct taxes are levied on income, profits, and assets (e.g., PAYE, Corporation Tax).
Indirect taxes are applied to goods and services (e.g., VAT, Excise Duty).
Understanding the types of taxes in Kenya helps individuals and businesses plan better and avoid penalties.
Recent changes include the repeal of Digital Services Tax (DST) and Digital Assets Tax (DAT), replaced by other mechanisms like Significant Economic Presence Tax (SEPT).

Direct vs Indirect Taxes in Kenya

Direct Taxes

Among the types of taxes in Kenya, direct taxes date back to the precolonial era when taxes were collected in kind. Chiefs and village heads collected tax in the form of food or livestock.

Direct taxes are paid directly to the government by individuals or entities based on income, profits, or assets.

In contrast, Indirect taxes are levied on goods and services and are collected by intermediaries (like service providers or retailers) and then passed on to the government.

Key Characteristics of Direct Taxes:

Progressive in nature: Different tax rates apply to different taxpayers i.e high earners pay more tax.
Requires filing or returns: Direct taxes mandate taxpayers to declare their income and file their returns within the stipulated timeframe.
Tax Incidence and burden fall on the same person: This means that the taxpayer bears the brunt of the tax cost directly.
Collected periodically: Direct taxes have a payment schedule i.e monthly in the case of PAYE, Annually for Corporate taxes or Transaction-based i.e Capital Gain Taxes
Based on one’s ability to pay: Direct taxes are calculated on income, profit or wealth.

Types of Direct Taxes in Kenya:

1. Income Tax

Income tax applies to all income earned in or derived from Kenya.

This includes business income, employment income, rental income, pensions, and returns on investments such as dividends and interest.

Applicable areas:

a) Business Income:

30% for resident companies, 37.5% for non-resident companies

b) Rental Income:

Residential: 7.5% on gross rent (Ksh 288,000 – 15 million annually)
Commercial: Taxed as part of total income (30% for companies, PAYE bands for individuals)

c) Pension Income:

Graduated tax rates apply, with exempt thresholds

d) Dividends and Interest:

Dividends: 5% (residents), 15% (non-residents)
Interest: 15% for both residents and non-residents

e) Digital Income:

Digital Service Tax was repealed in 2023
Replaced by Significant Economic Presence Tax SEPT: 3% on gross turnover

2. PAYE (Pay As You Earn)

Employers deduct PAYE from employees’ salaries or wages every month and remit to KRA by the 9th of the following month.

Applicability:

Salaries, wages, bonuses, commissions, allowances (e.g., housing, transport)

Rates (2025):

Ksh 0 – 24,000: 10%
Ksh 24,001 – 32,333: 25%
Ksh 32,334 – 500,000: 30%
Above Ksh 500,000: 35%

3. Corporation Tax

Tax on profits earned by companies and incorporated entities:

Resident companies: 30%
Non-resident companies: 37.5%
Newly listed companies: 25% for first 5 years
Export Processing Zones: Exempt for 10 years

4. Capital Gains Tax (CGT)

Charged on profits from the sale of land, buildings, or shares.

Rate: 15% of the net gain
CGT is considered as a Final tax
Due within 30 days of the transfer

5. Withholding Tax (WHT)

Tax deducted at source for payments such as dividends, interest, royalties, consultancy, and contract payments.

Rates: 5% to 20%, depending on the nature of payment and residency
Final tax in most cases
Remit by the 20th of the following month

6. Rental Income Tax

Residential Rental Income: 7.5% on gross rent for landlords earning between Ksh 288,000 and 15 million annually. This is a final tax.

Commercial Rental Income: Taxed at 30% for companies, or PAYE bands for individuals. Deductions allowed (e.g., interest, repairs).

7. Significant Economic Presence Tax (SEPT)

Applies to non-resident digital service providers with a significant user base in Kenya.

Rate: 3% on gross turnover
Replaced DST in 2023

Indirect Taxes in Kenya

Another important category within the types of taxes in Kenya is indirect taxes.

Indirect taxes are charged on goods and services and are typically passed on to the consumer.

The tax is collected by an intermediary such as a retailer or service provider.

Key Characteristics of Indirect Taxes:

Transaction based: This tax is applicable whenever one purchases goods or services.
Regressive in nature: This rate is standard meaning that everyone pays the same rate regardless of their income.
Tax incidence and burden are different: This tax is collected by one party but is paid by another e.g Consumer through VAT.
Collected continuously: This tax is collected at every point of sale or service.
Easier to administer: This tax is collected via businesses or sellers which function as tax agents.
Impacts prices: Indirect taxes like VAT and Excise duty are included in product pricing.

Types of Indirect Taxes in Kenya:

1. Value Added Tax (VAT)

This is a Consumption tax charged on goods and services at each stage of the supply chain

Standard Rate: 16%
Zero-rated: Exports, basic food items
Exempt: Education, health, financial services

Filing: Monthly, by the 20th of the following month

2. Excise Duty

Levied on specific goods/services considered luxurious or harmful

Applies to: Alcohol, tobacco, fuel, airtime, bank fees

Rate: Fixed amount per unit or percentage (ad valorem)

3. Import Duty

Charged on goods imported into Kenya

Rates: 0% – 25% depending on the product category under the EAC CET
Mode of Collection: Collected at ports of entry by customs

4. Digital Services Tax (DST) – Repealed in 2023

Applied to: Non-resident digital marketplace providers

Rate: 1.5% of gross revenue

Replaced by: Significant Economic Presence Tax (SEPT)

5. Digital Assets Tax (DAT)

One of the newer types of taxes in Kenya, the Digital Assets Tax (DAT), which was repealed in 2025
It targeted cryptocurrencies and NFTs
Rate: 3% on transaction value

Replaced by: 10% excise duty on crypto transaction fees

6. Environmental Levy (Proposed – 2025)

Will target non-recyclable and polluting products e.g., plastics, batteries
Intended to encourage sustainability

Rate: Not yet finalized

Comparison of the Main Types of Taxes in Kenya

Feature	Direct Tax	Indirect Tax
Based on	Income, profits or assets	Goods and Services
Who Pays	Taxpayer Directly	Consumer (indirectly)
Can it be shifted?	No	Yes
Filing Needed?	Yes	Often handled by the seller
Examples	PAYE,CGT, Corporation Tax	VAT, Excise Duty, Import Duty

FAQs

1. What is the main difference between direct and indirect taxes?

Direct taxes are levied directly on individuals or entities based on income or profits (e.g. PAYE, Corporation Tax).
Indirect taxes are imposed on goods and services and are paid by consumers through intermediaries (e.g. VAT, Excise Duty).

2. Who bears the burden of direct vs indirect taxes?

Direct taxes: The person or entity taxed bears the cost (non-transferable).
Indirect taxes: The burden is shifted to the end consumer who pays it as part of the product/service cost.

3. Which taxes are easier to evade – direct or indirect?

Direct taxes are easier to evade or underreport, especially in informal sectors.
Indirect taxes are harder to evade as they are collected at the point of sale or importation.

4. Which type of tax contributes more to Kenya’s revenue?

As of recent fiscal years, indirect taxes (especially VAT and Excise Duty) contribute a significant portion of government revenue due to their wide base and easier enforcement.

5. Can a person be affected by both types of taxes in Kenya?

Yes.

For example, a salaried employee pays PAYE (direct tax) and also pays VAT and Excise Duty when purchasing goods and services (indirect taxes).

Conclusion

Understanding the types of taxes in Kenya, especially the distinction between direct and indirect taxes, is crucial for both individuals and businesses operating in Kenya.

While direct taxes like PAYE and Corporation Tax are based on income and profits, indirect taxes like VAT and Excise Duty affect daily consumption.

Navigating Kenya’s tax system effectively requires clarity, compliance, and strategic planning – especially as tax laws continue to evolve.

Need Help Navigating Tax Compliance?

Talk to a Tax Expert at Quartet Consulting today!

Disclaimer

This content is for informational purposes only and is not intended as tax or legal advice. Please consult a professional or Contact Quartet Consulting for guidance specific to your situation.

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