KRA Targets Kenyans Working at Diplomatic Institutions

Local employees of organizations with diplomatic agreements with Kenya, such as the United Nations, who have previously been exempt from paying taxes will now have Pay as you earn (PAYE) deducted from their monthly salaries by their employers.

The Ministry of Foreign and Diaspora Affairs issued a circular yesterday, directing organizations that have Host Country Agreements in Kenya to make sure that their local staff pays income tax. Host Country Agreements are international social security agreements that follow the United Nations conventions on diplomacy. These agreements cover a range of topics, including providing immunity to foreign employees in these organizations.

To tackle Kenya’s financial shortfall and prevent additional borrowing, President William Ruto’s administration has sustained measures to enhance tax revenue. In a letter dated January 10, 2024, the Ministry of Foreign Affairs emphasizes the obligation for employers to deduct and report taxes on employee income per the Income Tax Act. These funds are then to be remitted to the Kenya Revenue Authority (KRA). However, certain prominent organizations in Kenya, such as Bill & Melinda Gates, the United Nations Environment Programme, Mastercard Foundation, the European Investment Bank, and the World Agroforestry Center (ICRAF), are exempt from this requirement.

The tax exemption only applies to diplomats and not to locally employed individuals, as stated by tax specialist Nikhil Hira. An anonymous KRA official also confirms the common belief that individuals working for diplomatic and supra-national organizations are not obligated to pay taxes. The official explains that most host country agreements waive taxes for non-Kenyans who are in the country solely for work. In light of these developments, the Ministry of Foreign Affairs, led by Musalia Mudavadi, has issued a letter urging non-compliant staff members to take advantage of the current tax amnesty, which will be in effect from September 1, 2023 to June 30, 2024.

Those who apply for amnesty will have their penalties and interests waived, as long as they were not a result of tax avoidance or evasion. Individuals who choose not to participate in PAYE schemes are advised to consider utilizing the assistance of income tax agents to uphold their compliance. The government has set a target for the Kenya Revenue Authority (KRA) to collect Sh2.6 trillion in taxes for the current fiscal year, with an anticipated increase to Sh2.96 trillion by the fiscal year 2024/25.