All The Taxes You Pay In A Day If You Earn Ksh100,000

If you earn a gross salary of Ksh100,000 per month in Kenya, you will be surprised by the amount of taxes everyday. 

An analysis by Money254 shows that for every day you work, the first Ksh801 you make goes to a set of direct taxes that are deducted before your salary gets to you. You also pay another Ksh334 per day - through direct taxes. Meaning you pay taxes worth about Ksh1,135 per day

That's Ksh34,069 in total taxes every month — nearly one-third of your gross income.

In this article we break down how and where you pay these taxes daily assuming you earn a gross of Ksh100,000 per month.

Read Also: How to Pay Less Taxes Legally in Kenya

The 2 Types of Taxes You Pay

Kenya’s tax system is structured into direct and indirect taxes. Direct taxes, such as income tax, are deducted from your salary before you even receive it. Indirect taxes, on the other hand, are applied when you spend money on goods and services.

The Kenya Revenue Authority (KRA) administers national taxes and every tax you pay is remitted to them. Whether you're paying for rent, food, or transportation, every transaction contributes to the tax burden.

Direct taxes are levied on people and properties, and are usually based on income, profits, and assets. 

The three most common types of direct tax are individual income tax like PAYE and withholding tax, land rates, and Capital Gains tax. Corporation tax is another type of direct tax, but is paid only by companies. 

Indirect taxes are generally levied on goods and services, not people. Most people pay these taxes without knowing it, as it will often be included in the price they pay. 

For example, when you buy a bottle of mineral water, you are also paying excise duty; similarly, when you buy items from shops, you will often also be paying VAT (for the goods to which it applies).

Read Also: The Cost of Starting a Business in Kenya: All The Taxes and Fees You Pay 

Pay As You Earn (PAYE)

This is an income tax that is levied on your gross income and is deducted at the source before you receive your salary. 

The PAYE  system ensures that individuals pay their income tax obligations on a regular basis throughout the year rather than in a lump sum at the end. However, a taxpayer is required to file their returns after every year, before 30th June.

Now, let's break down how PAYE works in the context of a monthly gross income of Ksh100,000:

Gross Income: Ksh100,000 per month

Taxable Income: Certain deductions and exemptions are applied to arrive at the taxable income. This includes items like NSSF pension contributions (Ksh4,320), Housing Levy (Ksh1,500), and SHIF insurance contributions (Ksh2,750). You will also receive personal tax relief of Ksh2,400.

PAYE Calculation: The PAYE calculation will consider all the deductions and reliefs to calculate your taxable income. Thereafter, you will be taxed depending income band. 

‍Here is a breakdown:

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From the calculation above, your income tax liability will be Ksh19,812. This means you would be paying approximately Ksh660 in PAYE per day from a gross monthly income of Ksh100,000 in Kenya. 

Apart from PAYE, there are other deductions which are mandatory - even though they are not taxes. This includes the Housing Levy, SHIF, and NSSF. NSSF payments are accessible to you upon retirement so we will exempt it in this calculation. 

This means the government collects a total of Ksh4,250 through mandatory deductions, which amounts to Ksh141 every. 

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Read Also: Why Do Wealthy People Borrow Money?

Indirect Taxes on Daily Spending

After all the payroll deductions and paying your PAYE tax, your take-home salary will be Ksh71,617. If you save 25% of your net income, you will be left with Ksh53,712 to spend. However, you will still pay multiple indirect taxes whenever you buy goods and services. 

Let’s look at some of these taxes: 

1. Rent

• Expenditure: Ksh20,500
  
  
• Tax Component: Landlords in Nairobi are required to pay a 7.5% income tax on rental income, which is typically passed on to tenants.
  
  
• Calculation:
  
  
  • 7.5% of Ksh20,500 = 0.075 × 20,500 ≈ Ksh1,537
    
    
• Indirect Tax Paid: Ksh1,537
  

2. Groceries

• Expenditure: Ksh10,000
  
  
• Tax Component: Most food items are subject to a Value Added Tax (VAT) of 16%.
  
  
• Calculation:
  
  
  
  • 16% of Ksh10,000 = 0.16 × 10,000 = Ksh1,600
    
    
• Indirect Tax Paid: Ksh1,600

3. Electricity

• Expenditure: Ksh1,500
  
  
• Tax Component: When you buy electricity tokens, multiple taxes and levies are applied on every shilling spent.
  
  
• Estimated Tax: Approximately Ksh600 of your Ksh1,500 expenditure is taken as taxes.
  
  
• Indirect Tax Paid: Ksh600

4. Calls, SMS, and Internet Bundles

• Expenditure: Ksh4,000
  
  
• Tax Component: Airtime and data purchases include a 15% excise duty.
  
  
• Calculation:
  
  
  
  • 15% of Ksh4,000 = 0.15 × 4,000 = Ksh600
    
    
• Indirect Tax Paid: Ksh600

5. Transport (Fuel)

• Expenditure: Ksh10,600
  
  
• Tax Component: Fuel prices include several indirect taxes and levies. In March 2024, one litre of petrol cost Ksh176.58, with Ksh81.03 of that being taxes and levies.
  
  
• Calculation:
  
  
  
  • Ksh10,600 will buy you about 60 litres of petrol.
    
    
  • Total tax = 60 litres × Ksh81.03 per litre ≈ Ksh4,861
    
    
• Indirect Tax Paid: Ksh4,861

6. Discretionary Spending

• Expenditure: Ksh7,100
  
  
• Tax Component: Non-essential spending such as dining out, entertainment, and clothing is subject to VAT.
  
  
• Calculation:
  
  
  • On Ksh7,100 of discretionary spending, the embedded VAT amounts to approximately Ksh1,136.
    
    
• Indirect Tax Paid: Ksh1,136
  

Read Also: If You Have Medical Insurance, You Need to Read This - Now

Summing Up All the Indirect Taxes

Let’s compile the tax contributions from each spending category:

From the calculation above, you will be spending Ksh10,334 paying indirect taxes. This works out to approximately Ksh344 per day. 

Daily Tax Summary – How Much Do You Pay?

In the scenario above, your PAYE deduction comes to Ksh19,812, which is directly taken from your monthly salary as required by the government.

Moreover, the money you spend each month is subject to various indirect taxes on goods and services. Altogether, these indirect taxes add up to Ksh10,334. This total includes charges like value-added tax on products and services, excise duties, and other similar fees included in the prices you pay.

To calculate your overall monthly tax burden, simply add the direct and indirect tax amounts which add up to 34,069.

To find your daily tax amount, divide this monthly total by 30 (assuming a 30-day month) and your Daily Tax Liability ≈ Ksh1,135

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Read Also: Ksh MMF vs. USD MMF – Which Money Market Fund Should You Choose? 

Wrapping Up

Understanding your daily tax contributions can empower you to make smarter financial choices. By knowing exactly how much tax is embedded in your everyday expenses, you can identify areas to trim spending, which in turn reduces the amount of indirect taxes you pay. 

For instance, by cutting down on non-essential purchases or opting for less expensive alternatives, you directly lower the VAT, excise duties, and other levies included in those costs. This will free up more of your income for saving and investing. 

When it comes to direct taxes like PAYE, one effective way to lower your tax burden is by increasing your deductions. This means taking advantage of any allowable expenses or contributions that reduce your taxable income. 

For example, by contributing more to approved registered pension, provident fund, or individual retirement fund or investing in instruments that attract tax relief like life and education insurance, you can lower your overall taxable income.