Withholding Tax (WHT) is a common area of confusion for many SMEs and professionals. As an accountant with 20 years' experience, I've found that the key is to treat WHT correctly in your records so that it offsets against your final tax liability.
What is Withholding Tax (WHT)?
Withholding Tax is an advance payment of income tax deducted at source by a person making a payment to another. In Kenya, various payments are subject to WHT, including professional fees, interest, royalties, and commissions.
The Basic Procedure for Recording WHT
🔹 1. When Income is Received (Subject to WHT)
If your client pays you Ksh 100,000 but deducts 5% WHT (Ksh 5,000), you only receive Ksh 95,000.
Journal Entry:
Debit: Bank Ksh 95,000
Debit: WHT Receivable (Tax Credit) Ksh 5,000
Credit: Income Ksh 100,000
🔹 2. Filing & Recognition
The WHT credit (5,000) is not an expense — it is a prepayment of your income tax.
File it in iTax under WHT credits using the certificate issued by your client.
🔹 3. At Year-End (or Final Tax Computation)
When determining your corporate or personal tax liability, offset the accumulated WHT credits against the tax payable.
Example:
Total Tax Payable: Ksh 200,000
Less: WHT Credits: Ksh 50,000
Net Tax Payable: Ksh 150,000
Common WHT Rates in Kenya
| Type of Payment | Resident Rate | Non-Resident Rate |
|---|---|---|
| Professional services, consultancy fees | 5% | 20% |
| Interest | 15% | 15% |
| Royalties | 5% | 20% |
| Commission | 5% | 20% |
| Rent | 10% | 30% |
Best Practices for WHT Management
✅ Always Insist on a WHT Certificate
Without a proper WHT certificate, you cannot claim the tax credit. Make it a standard practice to request certificates from all clients who deduct WHT.
✅ Record WHT as a Tax Asset
Always record WHT as a tax asset (receivable), not an expense. This ensures you properly track your tax credits.
✅ Regular Reconciliation
Regularly reconcile WHT credits on iTax with your records. This helps identify discrepancies early and ensures you claim all eligible credits.
✅ Maintain Proper Documentation
Keep all WHT certificates organized and easily accessible for reference during tax filing and audits.
⚠️ Common Mistake to Avoid
Many businesses incorrectly record WHT as an expense, which reduces their profit and results in overpayment of taxes. Always remember that WHT is a prepayment of your tax liability, not an expense.
How to Claim WHT Credits on iTax
- Log in to your iTax account
- Navigate to the "Returns" section
- Select "Withholding Tax"
- Choose "Claim WHT Credit"
- Enter the details from your WHT certificates
- Submit for processing
✅ Key Takeaways
- WHT is a tax credit, not an expense
- Always obtain and keep WHT certificates
- Record WHT as a receivable asset
- Reconcile WHT credits regularly
- Claim WHT credits on iTax to reduce your tax liability
Final Thoughts
Proper WHT recording ensures you don't "lose" money to the taxman by failing to claim your credits. By implementing these practices, you can improve your cash flow and ensure tax compliance.
Need help with WHT management? Contact Imeka Consult for professional tax advisory services tailored to your business needs.