Taxation
Framework first
Kenyan tax questions reward precision on chargeable income, residence and the difference between allowances, exemptions and reliefs. Know income tax on individuals (graduated bands, personal relief) and companies (30% resident; higher rate for non-resident branches), capital allowances, capital gains tax, VAT, withholding tax, PAYE, instalment tax and transfer pricing.
Concepts to hold firmly
Residence: a company is resident if incorporated in Kenya or centrally managed and controlled there; residence changes the tax base from Kenyan-source to worldwide income. Capital allowances: wear and tear on reducing balance, investment deduction on qualifying capital expenditure, and a balancing charge or deduction on disposal. VAT: registration threshold on taxable turnover; the critical distinction between zero-rated (0% but input tax recoverable) and exempt (no output tax but input tax restricted). Withholding tax: some credits are final (typically non-resident dividends), others are offsettable against the final liability. Instalment tax: payable on or before the 20th day of the 4th, 6th, 9th and 12th months of the accounting period. Cross-border: transfer pricing at arm's length, interest deductibility limits and thin capitalisation.
Traps that appear in questions
Claiming input VAT on exempt supplies. Treating a balancing charge as a capital receipt outside taxable income. Forgetting that disallowed expenses - entertainment, club subscriptions, fines, capital items - must be added back before allowances. Ignoring that CGT is on net gain and is separate from income tax. Mixing personal relief with tax already withheld. Applying residence rules loosely to partnerships and trusts.
Worked example
A trader makes zero-rated sales of KES 4m and exempt sales of KES 2m, with input VAT of KES 300,000. Input tax is apportioned: 4/6 × 300,000 = KES 200,000 recoverable; the KES 100,000 attributable to exempt supply is expensed.