Kenya Revenue Authority: No Tax on Gratuity Payments Post-July 1, 2025

• KRA issues new guidance on tax exemption for gratuity payments.
• Gratuity payments earned from July 1, 2025, are exempt from income tax, but gratuity earned prior to this date remains taxable.
• Employers must provide a certificate of exemption to the employee, including details of the payment and reason for exemption.
• Failure to comply with tax laws can result in penalties for both employer and employee.

The updated KRA guidance aims to promote compliance and avoid any potential disputes between employers and employees.

The Kenya Revenue Authority (KRA) has issued new guidance on the tax exemption for gratuity payments. The updated guidelines aim to clarify the process for employers and employees alike. According to the KRA, gratuity payments are exempt from income tax, but only if certain conditions are met. Employers must ensure that they meet these requirements to avoid any potential penalties.

The tax exemption on gratuity payments is governed by the Income Tax Act, as amended by the Finance Act, 2025. Gratuities earned from July 1, 2025, are exempt from income tax. However, gratuity earned or relating to periods prior to July 1, 2025, remains chargeable to tax. The employer must also provide a certificate of exemption to the employee, which includes details of the payment and the reason for the exemption. Failure to comply with these requirements can result in penalties for both the employer and the employee.

The updated KRA guidance is crucial for employers and employees alike, as it provides clarity on the tax exemption process for gratuity payments. Compliance officers and lawyers must take note of the new guidelines to ensure that their clients' payment of gratuity is in line with tax laws. Failure to comply can result in penalties, which can be costly for both parties involved. The KRA's updated guidance aims to promote compliance and avoid any potential disputes between employers and employees.

Lawyers and compliance officers should watch for the updated KRA guidance to ensure their clients' payment of gratuity is compliant with tax laws, avoiding potential penalties.

Source: Original reporting via Kenya Revenue Authority