Locals working for organizations with diplomatic agreements with Kenya including the United Nations who have not been paying taxes will soon be deducted Pay as you earn (PAYE) every month by their employers.
Yesterday, the Ministry of Foreign Affairs and Diaspora Affairs issued a circular asking all organizations that have signed Host Country Agreements with Kenya to facilitate payment of income tax for their local staff.
The Host Country Agreements, a type of international social security agreement, is usually in line with the United Nations conventions on diplomacy. Some of the issues the agreement addresses include immunity for foreign employees in these organizations.
This is yet another move by the administration of President William Ruto to increase tax collection as the country moves to reduce a budget deficit that has pushed Kenya at the brink of debt distress.
“Section 37(1) of the Income Tax Act, Chapter 470, Laws of Kenya provides that: ‘An employer paying emoluments to an employee shall deduct therefrom, and account for tax thereon, to such extent and in such manner as be described,’” said the Ministry of Foreign Affairs in a letter dated January 10, 2024.
“This places responsibility on such organisations as employers to deduct income tax from local staff and remit it to the Kenya Revenue Authority (KRA),” added the letter.
Some of the organisations with host country immunity with Kenya include Bill & Melinda Gates, the United Nations Environment Programme, Mastercard Foundation, European Investment Bank, and the World Agroforestry Center (ICRAF).
Nikhil Hira, a tax expert, noted that the tax exemption in those organisations only applies to the diplomats and not the locally employed staff.
“So an employer it is their obligation to deduct PAYE (Pay as you earn),” added Hira.
An official at the KRA, who spoke on condition of anonymity as he is not allowed to speak to the media not that for a long time, said there has been a belief that those people who are working with diplomatic and supra-national organisations are tax exempt.
“In the Diplomatic Immunity Act and the UN Conventions, there is usually a provision for certain organisations (let me use the UN or US as example) that you will not tax their people in Kenya,” said the source.
The source explained in most host country agreements exempts non-Kenyans who are in Kenya solely for the work that has brought them.
“But because of accessing these organizations there has been a long notion that even Kenyans working in those organizations are exempt. But there is no law that has ever exempted them,” added the source.
The letter from the foreign affairs ministry, which is headed by Musalia Mudavadi, also sought to encourage non-compliant staff in these organizations to take advantage of the ongoing tax amnesty which runs from September 1, 2023 to June 30th 2024. Those who apply for amnesty will see their penalties and interests waived, as long as they were not as a result of tax avoidance and evasion.
The organisations that opt not to have PAYE schemes are encouraged to seek services of income tax agents to ensure compliance.
In the current financial year, the government expects the KRA to collect taxes amounting to Sh2.6 trillion. This is then expected to rise to Sh2.96 trillion in the financial year 2024/25.
