14th-Jan-2026 • Isaac Kennedy • SME Taxation
Small and medium enterprises (SMEs) form the backbone of Kenya's economy, contributing significantly to its GDP. Yet, navigating the complexities of SME taxation remains a daunting task for many entrepreneurs. To help demystify this area, we have prepared an actionable guide tailored specifically for small business owners in Kenya and Africa.
Firstly, it's essential to understand that every business operating in Kenya is required by law to register with the Kenya Revenue Authority (KRA) and comply with tax obligations. Failure to do so may lead to penalties, fines, or even closure of the business.
The most common taxes for SMEs include Value Added Tax (VAT), Pay As You Earn (PAYE), National Health Insurance Fund (NHIF), and National Social Security Fund (NSSF) contributions.
If your business has an annual turnover of KES 5 million or more, you are required to register for VAT. This tax is charged at a rate of 16% on the supply of most goods and services.
If your business employs staff, it must withhold PAYE from their salaries and remit the amounts to KRA. The employer is also required to contribute 12% of the employee's monthly salary towards NHIF.
All employees must be registered with NHIF, and both employers and employees are required to make contributions. Self-employed individuals also have to pay their own contributions.
Both employers and employees contribute 15% of the employee's monthly salary towards NSSF. Self-employed individuals must pay both the employer and employee portions.
To simplify the process, SMEs can consider utilizing digital platforms such as Lipabiz, which offer integrated solutions for managing finances and tax compliance. By automating repetitive tasks and providing real-time insights, these platforms enable small business owners to focus on growing their enterprises.
In conclusion, understanding SME taxation is crucial for small business owners in Kenya to ensure long-term success. By staying informed, leveraging digital tools, and seeking professional advice when needed, entrepreneurs can navigate the complexities of tax compliance with confidence.