KRA explains why withholding tax is not final tax

The Kenya Revenue Authority (KRA) has moved to clarify widespread confusion among taxpayers who receive messages prompting them to file their annual income tax returns despite already having tax deducted at source through withholding tax.

The tax authority says many professionals and service providers mistakenly assume that once withholding tax has been deducted by a client, their tax obligations are fully settled.

However, the deductions often represent only a portion of the total tax due.

In a public advisory, KRA explained that withholding tax (WHT) should be treated as an advance tax payment rather than the final tax liability.

“If you received the message reminding you that your 2025 income tax return is ready for filing, come and let us talk,” KRA said in a public awareness message aimed at professionals and consultants across the country.

The authority noted that many individuals who provide consultancy or professional services, such as lawyers, accountants, engineers, doctors and business consultants, are commonly affected by the misunderstanding.

These professionals typically have withholding tax deducted directly by the client before payment is made.

For instance, if a consultant issues an invoice of Sh100,000 for services rendered, the client may deduct 5 per cent withholding tax amounting to Sh5,000 and remit it directly to KRA on behalf of the consultant.

While some taxpayers assume that the deduction settles their tax obligation, KRA says the Sh5,000 is only an advance payment.

“Tuko sure uliiona ukasema, ‘Si nilishamalizana na withholding tax. Kwani ile 5% ilienda wapi?’,” KRA said, acknowledging the common question many taxpayers ask when they receive the tax filing notification.

“Dear...Your 2025 income tax return is ready for filing. Our records indicate that you earned income subject to Withholding Tax (WHT). Please settle any tax due and file your returns as provided by the law. To make a payment, generate a Payment Reference Number (PRN) on iTax and complete the payment accordingly. For assistance, call 0711 099 999,” the message received by some individuals from KRA.

The authority explained that the actual tax payable depends on the applicable income tax rate, which in many cases is higher than the withholding rate.

If the applicable income tax rate for the professional is 30 per cent, the total tax payable on the Sh100,000 income would amount to Sh30,000.

Since Sh5,000 has already been paid through withholding tax, the taxpayer would still be required to pay the remaining Sh25,000 when filing the annual tax return.

KRA stressed that when filing returns, taxpayers must declare the full amount earned before deductions.

In the example above, the taxpayer must declare the entire Sh100,000 as income, not the Sh95,000 received after withholding tax.

“So far, you have paid only 5 per cent. The applicable tax rate is 30 per cent. The remaining balance must be paid when filing returns,” the taxman explained.

The confusion largely arises because withholding tax is deducted at relatively low rates compared to the standard income tax rates applied to professionals and businesses.

For many service providers, withholding tax rates range between three and five per cent, depending on the nature of the services provided.

However, these deductions do not replace the requirement to file annual returns and declare total income earned during the financial year.

KRA has urged taxpayers to ensure that they file their returns accurately and settle any outstanding tax to avoid penalties and interest.

Under Kenyan tax laws, failure to file income tax returns attracts penalties, even for individuals who believe they have no additional tax to pay.

The authority has also reminded taxpayers that filing returns is a legal requirement for all individuals with taxable income.

To simplify the process, taxpayers can generate a Payment Reference Number (PRN) through KRA’s digital platforms and make payments electronically.

The returns can be filed through the authority’s online systems, including the iTax platform and the eCitizen portal.

KRA said taxpayers who need assistance can contact its customer care centre or visit the nearest tax service office for guidance on how to declare income correctly.

With more Kenyans increasingly earning income through consultancy, freelance work and professional services, KRA says awareness about how withholding tax works is crucial.

“Declare your full income, file your returns and pay any balance due,” the authority said, summarising the key steps taxpayers should follow.