What KRAs new system means for freelancers, consultants and professionals

Kenyans who work as consultants are under renewed scrutiny as the Kenya Revenue Authority (KRA) intensifies enforcement actions targeting undeclared income, particularly withholding tax on professional services.

The latest crackdown, driven by automated audits and third-party data matching, has flagged 392,162 individuals and firms suspected of tax non-compliance, with unpaid liabilities estimated at Sh759.7 billion.

Self-employed professionals,  including consultants, advisors, trainers, and freelancers, are among the most exposed, as KRA tightens controls ahead of broader 2026 tax administration reforms.

At the centre of the audit is a growing mismatch between self-declared income and withholding tax records submitted by clients.

When a client pays a consultant, they are required to deduct withholding tax at source and remit it directly to KRA. These transactions create a digital trail that KRA now cross-references against annual income tax returns.

If a consultant files a nil return, under-declares income, or omits consultancy fees already subjected to withholding tax, the system automatically flags the account, triggering audits, penalties, and enforcement actions that may include bank account freezes or asset seizures.

Consultants serving multiple clients or operating within the gig economy are particularly vulnerable, as they remain among the most under-declared income streams.

Withholding tax is an advance payment of income tax rather than a final tax.

For consultancy, management, and professional services, resident consultants are taxed at 5 percent, while non-resident consultants are subject to a 20 percent rate. Consultants from East African Community member states may qualify for a reduced 15 per cent rate under applicable tax treaties.

Clients are required to remit the deducted tax to KRA by the 20th of the following month and issue a withholding tax certificate, which consultants can then claim as a credit when filing annual income tax returns.

Failure to reflect this income, even where tax has already been withheld, exposes consultants to additional tax demands, penalties, and interest.

Beyond withholding tax, consultants classified as self-employed persons have additional tax obligations.

Consultants are required to pay income tax on what remains after allowable business deductions such as travel, marketing, rent, and office-related expenses.

Kenya’s resident income tax rates are progressive, starting at 10 per cent on the first Sh288,000 and rising to 35 per cent for income exceeding Sh9.6 million. 

Where annual tax liability exceeds Sh40,000, instalment tax payments are required during the year. Annual returns must be filed by June 30 for the previous calendar year.

Consultants whose annual turnover exceeds Sh5 million are required to register for VAT and charge 16 per cent on taxable services, while claiming input VAT on eligible business expenses.

Those below the threshold may opt for voluntary registration. All consultants must issue invoices through the Electronic Tax Invoice Management System (eTIMS), with non-compliant records risking the disallowance of related expenses during audits.

With KRA increasingly relying on automated systems to validate income and expenses, consultants are advised to maintain accurate records, reconcile withholding tax certificates with declared income, and ensure all invoices are captured through eTIMS.

Setting aside between 25 and 30 per cent of earnings for tax obligations can help ease cash-flow pressure, while engaging a certified tax professional may help reduce exposure to compliance risks.

KRA has also temporarily limited routine nil filings in certain cases to allow deeper transaction reviews, making it critical for consultants to review their 2025 returns ahead of the June filing deadline.

Failure to comply with tax obligations can result in severe enforcement measures, including travel restrictions, garnishment of bank accounts, KRA PIN deactivation, and prosecution.

As Kenya expands its tax base to fund public services, KRA has signalled that enforcement will remain firm and increasingly data-driven. For consultants, full and accurate disclosure is no longer optional.

For official guidance, taxpayers are encouraged to consult licensed tax practitioners or seek information directly from the Kenya Revenue Authority.