All You Need to Know About Withholding Tax Amid KRA Crackdown

The Kenya Revenue Authority (KRA) recently uncovered over 390,000 taxpayers and firms that had evaded the payment of taxes following an audit of the Withholding tax registry.

Following the discovery, the taxman is expected to enhance compliance for Kenyans who pay Withholding Tax ahead of the deadline of filing tax returns for 2026.

Here is all you need to know about Withholding Tax.

What is Withholding Tax?

Withholding tax is an advance tax that is deducted at the point of payment before the income reaches the person or business earning it. Unlike salaried Kenyans who pay income tax through PAYE, Withholding Tax applies to those who are hired as consultants or those who offer professional services like lawyers.

Also Read: KRA to Verify Tax Returns Filed by PIN Holders

In the case of Withholding Tax, the company or individual who has hired the services of a professional deducts the applicable tax rate (usually 5%) and remits it to KRA within 5 working days. After which, the company will pay the balance to the person whose services have been hired and issue a Withholding Tax certificate.

Afterwards, the receiver of the payment, e.g. consultant, is then expected to pay the remaining tax (mostly 25%).

However, there are cases where the tax that was withheld by the company that hired your services is final.

“The common misconception is your client paid you Ksh100,000 for that consultancy job, they deducted 5% withholding tax (Ksh 5,000), you received Ksh 95,000, and you thought, ‘great! Tax is sorted! Tumemalizana na KRA.’ Unfortunately, that’s not the case,” KRA stated.

Cases Where Withholding Taxes are Final 

Withholding Tax is final when deducted in relation to a payment made to a non-resident person with no permanent establishment in Kenya.

‍Concerning payments to Kenyans, Withholding Tax is a final tax when it relates to winnings, qualifying interest, qualifying dividend and pensions.

In every other case, Withholding Tax is not a final tax. The taxpayer is required to declare their income and the Withholding Tax details when filing their annual tax returns and to pay any balance of tax due.

Also Read: KRA Changes the Process of Filing Taxes for Salaried Individuals; How It Will Work

Cases Where Withholding Tax is Not Final 

Withholding Tax Rate (often 5%) is lower than your actual tax rate (30% corporate or up to 35% individual); therefore, a person being paid for services rendered has to pay the remaining amount. The services whose initial Withholding Tax is not final include;

1. Professional fees
2. Consultancy fees
3. Management fees
4. Contractual services (e.g., construction)
5. Commissions
6. Marketing and advertising services
7. Digital content income

What to Do If You Have Paid Withholding Tax?

1. Collect all Withholding Tax certificates throughout the year.
2. File your annual returns.
3. Declare all your income (including amounts that had Withholding Tax deducted).
4. The Withholding Tax already paid gets credited to your account.
5. Pay any balance due.

Penalty for Late Payments?

Where a company or individual fails to Withhold Tax, the tax shall be deemed to be due and payable by him/her as though he was the person who earned the income, and the due date for the payment shall be the date on which the amount of tax should have been remitted to KRA.

A late payment penalty of 5% shall also apply to the tax due, together with a late payment interest of 1% per month for the period that the tax remains unpaid.

Filing for 2026 Tax Returns 

Starting 1 January 2026, KRA began automatic validation of income and expense figures declared in both individual and business income tax returns. This verification is done by cross-checking taxpayer filings against existing digital data, such as eTIMS electronic invoices, and Withholding Tax gross amounts.

Under this system, only transactions backed by valid electronic invoices issued through the Electronic Tax Invoice Management System (eTIMS/TIMS) will be accepted as legitimate income or expenses; otherwise, they risk being disallowed.