Paid 5% withholding tax? Here’s why you may still owe KRA more

Many professionals in Kenya often assume that once a client deducts 5 per cent withholding tax from their payment, their tax obligations are complete.

However, the Kenya Revenue Authority (KRA) has clarified that this deduction is only an advance payment and not the final tax owed.

Through a social media thread shared by its customer support platform KRA Care, the tax authority sought to explain the issue in simple terms, addressing a common question among freelancers and consultants.

“Tuko sure uliiona ukasema, ‘Si nilishamalizana na withholding tax. Kwani ile 5% ilienda wapi?’” the agency wrote, acknowledging the confusion many taxpayers experience.

According to the tax authority, withholding tax is applied when a client deducts a portion of tax before paying a service provider.

This often affects professionals offering consultancy services such as lawyers, accountants, engineers, business consultants and doctors.

“Unajua vile client anakukata tax direct kabla ya kukupea pesa? That’s Withholding Tax (WHT),” the agency explained.

For example, if a consultant issues an invoice of Sh100,000, the client may deduct 5 per cent, which equals Sh5,000, and remit it directly to the tax authority. The consultant therefore receives Sh95,000.

However, the deducted Sh5,000 does not settle the total tax obligation.

The authority explained that the withholding tax amount should be treated as an advance payment toward the taxpayer’s final tax liability.

“WHT = Sh5,000. Hiyo ni kama advance, si final tax,” KRA noted.

If the applicable income tax rate for the professional is 30 per cent, then the total tax due on the Sh100,000 income would be Sh30,000.

Since Sh5,000 has already been deducted as withholding tax, the taxpayer would still need to pay the remaining Sh25,000 when filing their returns.

KRA also emphasised that taxpayers must declare the full amount earned, not the amount received after the withholding deduction.

“Ikifika kufile and pay pale iTax, declare Sh100,000…not Sh95,000,” the agency explained.

This means that professionals should report the full income earned and then offset the withholding tax already paid when calculating the remaining tax due.

The authority encouraged taxpayers to file and pay their taxes correctly through its digital platforms, including the iTax portal.

The clarification forms part of ongoing efforts by KRA to simplify tax education and improve compliance, particularly among freelancers and consultants whose income often involves withholding deductions.