Kenya: What you need to know about the new regulation on NITA – PAYE
Whenever new regulations are put in place we all want to be in the know. You may be wondering what you need to know on the new regulation on NITA and PAYE in Kenya. Businesses need to ensure compliance in various aspects.. This involves ensuring statutory deductions (NSSF, NHIF and PAYE) are paid on time to the respective authorities to avoid penalties.
Let us dive into our main focus for today. The Unified Payroll Return launched by The Kenya Revenue Authority (KRA) and The National Industrial Training Authority (NITA) and the impact it will have on a business’s payroll. We will begin by understanding why the unified payroll was launched.
Background on the ease of doing business in Kenya
The Ease of doing business Agenda was launched in 2014 by President Uhuru Kenyatta. The Ministry of East Africa Community and Regional Development is assigned to execute the mandate of improving Kenya’s business environment. According to Doing Business, 2020 by World Bank, Kenya was ranked 56th out of 190 countries in 2019. An improvement from 136th place in 2014
First, Ease of Doing Business refers to measurement of regulations directly affecting businesses. The higher rankings indicate better regulations for businesses and stronger protections of property rights.
The effect of improving these regulations on economic growth is very strong. A nation’s ranking is based on the average of 101sub-indicators. They include dealing with construction permits ,getting utilities, registering property, ease of getting credit, protecting investors. Not forgetting paying taxes, trading across borders ,enforcing contracts, resolving insolvency and contracting with government (procurement).
In the recent years, the Kenyan government has made reforms aimed at improving the ease of doing business in Kenya. First, enactment of the Business Registration Service Act 2015 which established the Business Registration service (BRS).
The Business Registration Service (BRS), is a state corporation which is responsible for the implementation of laws, policies and other issues relating to registration of companies, partnerships, corporations and others. Its main aim is automating the business registration process. This means that services relating to application of business name reservation, business registration is done online via the E-citizen platform.
Provisional Tax reliefs
In 2020, Covid –19 pandemic paralyzed many economies and forced many businesses to lay off employees. The government of Kenya put in place provisional tax relief measures in 2020. The measures were to cushion citizens against the effect of the pandemic.
President Uhuru Kenyatta accented to the bill on 25th April 2020. The changes made were in Acts such as the Income Tax Act (CAP 470), the Value Added Tax Act, 2013, the Tax Procedures Act, 2015, the Miscellaneous Fees and Levies Act, 2016, the Excise Duty Act, 2015 and the Kenya Revenue Authority Act, No.2 of 1995.
The above bill reduced Turn over tax for Small and medium sized enterprises (SME’S) from 3% to 1% Value Added Tax (VAT) from 16% to 14%, Pay As You Earn(PAYE) and corporate tax from 30% to 25% and 100% relief to individuals earning a gross salary of less than Ksh 24,000.
On 23rd December 2020 parliament passed the motion to reverse the above tax reforms retuning them to their previous percentages. Turn over tax 3%, Value Added Tax 16%, Resident corporate income tax 30%, Pay As You Earn(PAYE), the relief 100% tax relief to individuals earning a gross salary of less than Ksh 24,000.The act came into force on 1st January 2021.
Unified payroll return KRA and NSSF
The unified payroll return initiative was launched in May 2020. This was done under the ease of doing business agenda as a pilot program with Large and medium taxpayers offices.
Upon success of the unified payroll return, there was a national rollout to all employers. The unified payroll return involves the joint declaration of Pay as you earn (PAYE) and National Social and Security Fund (NSSF) deductions.
This will be done through the Kenya Revenue Authority (KRA) online platform itax. This will help reduce employers’ compliance efforts and costs.
Unified payroll return KRA and NITA
Let us start off with a brief introduction: The National Industrial Training Authority (NITA) is a state corporation was established under the Industrial Training (Amendment) Act of 2011.NITA’s mandate is to promote industrial training and provide skilled workforce in Kenya.
I know you may be asking what the registration criteria is, here’s an explanation; first, any company registered in Kenya for and is more than 12 months old is obligated to register with NITA. Second, any company registered in Kenya that has more than 100 employees but is less that 12 months old needs to register.
The Kenya Revenue Authority and The National Industrial Training Authority (NITA) developed a new regulation on NITA and PAYE in January 2020. The payment starts with the month of December 2020. Employers will be required to pay an amount of Ksh 600 per employee per year. The industrial training levy will be due on due 9th of the subsequent month after the end of the employer’s financial year. Did you know that failure to submit the industrial levy on time attracts a penalty of 5% of the contributions?
As we conclude, The Ease of Doing Business Agenda is a key priority for the Kenyan government. The new regulation NITA and PAYE between the Kenya Revenue Authority (KRA), The National social and security fund (NSSF) and The National Industrial Training Authority (NITA) are among reforms to be implemented.
The government is expected to launch of a unified payroll return between The Kenya Revenue Authority (KRA) and The National Hospital Insurance Fund (NHIF) soon.
Following all this change, there is expected to be a bit of confusion, especially in navigating the online tax system itax. In case of this difficulties it would be best to find experts. The experts will help you understand and they will help guide you through the process. Subsequently allowing you to focus primarily on the core of your business.