Employment Tax in Kenya

1. Tax Free Pension - (s.8(4))
   
   
   
   • On retirement before 65yrs, the annual tax free pension is Kshs.300,000.
   • Pensions and lump sum payments after age 65 are tax free.
2. Tax Free Lump Sum Payments / Withdrawals.
   
   
   • The first Kshs. 600,000/- lump sum commuted from a registered pension or individual retirement fund (s. 8(5)(a)).
   • At withdrawal upon termination of employment you are entitled to receive tax free lump sum payment from the fund of Kshs. 60,000/- for every full year of membership in the scheme up to a maximum of Kshs. 600,000/- (s. 8(5)(b)).
   1. The tax on the excess amount is then calculated as per the tax table 1 below - (Third Schedule para. 5(d)(ii))
   
   
   

   Band	upto 2017	2018-20	2020-Apr	2021	Rate
   	Kshs	Kshs	Kshs	Kshs
   On First	121,968	147,580	288,000	288,000	10%
   On next	114,912	139,043	200,000	nil	15%
   On next	114,912	139,043	200,000	nil	20%
   On next	114,912	139,043	over 688,000	100,000	25%
   On over	466,704	564,709	n/a	388,000	30%

   
   
   
   2. However, the excess amount is subject to tax as per the table 2 below if you are (First Schedule para.53)
      
      
      • over 50 years of age, or
      • you have been a member of the scheme for more than 15 years or
      • upon earlier retirement on grounds of ill-health or infirmity of body and mind
      kindly note that this tax is final tax - (Third Schedule para. 5(d)(i))
      
      

   Band	to 2020-Mar	2020-Apr	2021	Rate
   	Kshs	Kshs	Kshs
   On the First	400,000	400,000	400,000	10%
   On the next	400,000	400,000	400,000	15%
   On the next	400,000	400,000	400,000	20%
   On the next	400,000	1,200,000	400,000	25%
   On over	1,600,000	n/a	1,600,000	30%



3. Tax Free Benefits From NSSF - (s.8(5)d)
   The first kshs.600,000 benefits paid out of the National Social Security Fund (NSSF).
4. Tax Free Lump Sum From HOSP - (s.8(5)e)
   In the case of a lump sum paid out of a registered home ownership plan (HOSP) and the amount is used in the purchase of an interest in, or for the construction of a permnent house for occupation by the depositor within 12 months after year of withdrawal.
5. Pensions From Unregistered Schemes - (s.8(5)f)
   Exempt to the extent that
   
   
   • contributions were not allowed as a deduction and
   • the income thereof has been taxed.
6. Upon Death - (s.8(6))
   
   
   1. Widow, widower or dependants shall qualify as a group as if the benefits were paid to the deceased if alive.
   2. Where the scheme provides for no payment of retirement benefits other than a lump sum to the estate, the first kshs.1.4 million is tax exempt.
7. Surplus Funds Refunded to Employer - (s.8(10)b)
   Any surplus funds withdrawn by or refunded to the employer shall be deemed to be the income of that employer and taxed at 25& (before April 2020, 30%).