Taxes Definition: Types, who Pays and why?


Taxes are mandantory contributions levied on individuals or corporations by a government entity-whether local, regional,or nation.Tax revenues financial government activities,including public works and services such as roads and schools, or programs such Social Security and Medicare. Taxes also play a pivotal role in shaping the economic landscape of any country, and Kenya is no exception. As a developing nation with aspirations of achieving sustained economic growth and improved social welfare, understanding the intricate web of taxation is crucial.


From the revenue generated to fund public services and infrastructure development to the redistribution of wealth and promotion of economic stability, taxes are the backbone of a nation's financial ecosystem.


Please keep in mind that tax laws and regulations can change, and specific circumstances can vary, so it's important to refer to the most recent and accurate sources for information regarding taxes and deductions in Kenya. If you're an employee, your employer's payroll department or a tax professional should be able to provide you with precise details about the taxes and deductions that apply to your situation.


Types of Taxes

1.Income Tax (PAYE - Pay As You Earn): This is a progressive tax on an individual's income, deducted at source by the employer. The rate varies depending on income levels.
2.National Social Security Fund (NSSF): Both employees and employers contribute a percentage of the employee's salary to this retirement savings fund.

3.National Health Insurance Fund (NHIF): This provides medical coverage to employees and their dependents. Contributions are deducted from an employee's salary.

4.The National Housing Development Fund (NHDF): funny enough, this was first established in 2018 through the Finance Act, and managed by the National Housing Corporation (NHC), with an objective of raising funds from various sources in an initiative aimed at providing affordable housing to Kenyans.
Enacts tax changes under Finance Act,2023

The Finance Act, 2023(the Act) was signed into law by the presicent on 26 June 2023.This Tax Alert summarizes the key changes contained in the Act.Unless specifically mentioned, the changes contained in thsi analysis were meant to take effect on 1 July 2023. However, ob 30 June 2023 ,the High Court of Kenya issued Conservatory Orders temporarily halting the implementation in this alert will take effect upon the lifting of those orders.


National Housing Development Fund

The Act introduces a mondatory housing levy to be contributed by both the employer and employee.For each employee,the employer must remit:

  • Its Contributions of 1.5% of the employee's Monthly gross salary
  • The employee's contributiion of 1.5% of the employee's monthly gross salary

    • Increased rate for personal tax

    The Act introduces two more tax rates and tax bands for individuals.The tax rate for individuals earning income between KES 500,000 to KES 800000 per month is 32.5% while those earning above KES 800000 per month are taxed at 35%.

    National Housign Development Fund

    The Act introduces a mandatory housing levy to be contributed by both the employer and employee. For each employee, the employer must remit:

  • Its contribution of 1.5% of the employee's monthly gross salary
  • The employee's contribution of 1.5% of the employee's monnthly gross salary

    • Paye rate 2023

    Monthly Taxable PAy Rate of Tax
    Up to Ksh24,000 10%
    Ksh24,001 to Ksh32,333 25%
    Ksh32,334 to Ksh500,000 30%
    Ksh500000 to Ksh800,000 32.5%
    Above Ksh800,000 35%