The Kenya Revenue Authority (KRA) has explained how withholding tax works for professionals, clarifying that deductions made by clients are not always the final tax payment.
In an advisory on Monday, February 16, the tax agency noted that many professionals wrongly assume their tax obligations end once withholding tax is deducted at source.
As such, KRA illustrated the common misunderstanding among consultants and service providers.
"Have you ever received a Withholding certificate? This one is for you. The common misconception is your client paid you Ksh100,000 for that consultancy job, they deducted 5% withholding tax (Ksh5,000), you received Ksh95,000. Unfortunately, that’s not the case," the agency said.
KRA acknowledged why the confusion exists but emphasized that in most cases, withholding tax is only a portion of the total tax due.
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"Many professionals receive payments with withholding tax deducted and believe their tax obligations are fully settled. We completely understand why this makes sense, tax was deducted before you even received payment, right?
"Here's what we want to help you understand, in most professional and consultancy cases, that deduction is actually a partial payment toward your total tax liability. Think of it as a deposit, not the full payment," the agency added.
What is withholding tax?
According to KRA, withholding tax (WHT) is tax deducted at source before a professional receives payment for services rendered.
The client or employer is required to deduct the applicable rate, remit the amount to KRA within five working days, pay the service provider the balance, and issue a withholding tax certificate.
The certificate indicates the gross amount paid, the rate applied and the amount that was remitted to KRA on behalf of the service provider.
When withholding tax is final tax
KRA further clarified that withholding tax is considered final tax only in specific circumstances.
These include qualifying dividends, qualifying interest, betting and gaming winnings, payments to non-residents without a permanent establishment in Kenya, and rental income tax for non-residents.
In such cases, no further filing is required on that income.
When withholding tax is not final tax
KRA explained that for most professional services, withholding tax is not final but a partial payment toward the total tax liability.
This applies to professional fees, consultancy fees, management fees, contractual services such as construction, commissions, marketing and advertising services, and digital content income.
"Why? Because the WHT rate (often 5%) is lower than your actual tax rate (30% corporate or up to 35% individual)," the agency stated.
This comes two weeks after KRA announced changes to the income tax filing process, introducing a phased system aimed at ending the last-minute rush.
In a statement on Thursday, February 5, the taxman said taxpayers will be grouped based on their income.
KRA explained that the new approach will ensure that every taxpayer receives timely, targeted guidance tailored to their individual needs.
"The 2026 filing season introduces a systematic, three-phase rollout that categorizes taxpayers by income complexity. This innovative approach ensures that each taxpayer receives relevant, timely information and support tailored to their specific filing requirements," KRA stated.
KRA noted that it has streamlined the filing process for taxpayers who earned income exclusively through employment in 2025.
The taxman said the taxpayers in this category will only be required to verify their employment details already captured in the iTax system and submit their returns.
For taxpayers with employment income plus additional revenue streams, KRA said they will receive targeted communication highlighting their specific income categories and guidance to ensure accurate filing.
"Taxpayers with employment income and one or more activities, those who earned employment income alongside other revenue streams in 2025, i.e., employment income or Rental Withholding Tax (WHT).
"These taxpayers will receive targeted communications highlighting their specific income categories and providing tailored guidance for accurate filing," KRA added.
