Career advice ยท Updated November 2026
Are Allowances Taxable in Kenya? House, Commuter, Per Diem and Mileage Explained
Most allowances in Kenya are taxable. KRA treats wages, salary, leave pay, commissions, bonuses, overtime and “any other payments received in respect of employment” as cash pay subject to PAYE, so house, commuter, hardship, responsibility and acting allowances paid in cash normally go into your taxable pay. The exceptions are narrow and specific: genuine reimbursements of work expenses, a daily travel allowance for official duty up to set limits, mileage at Automobile Association of Kenya rates, small meal benefits, and certain non-cash items below the benefit threshold. This guide explains how each common allowance is treated, so you can read your payslip or design a pay package correctly.
Sources: the KRA PAYE page and section 5 of the Income Tax Act as published by KRA, both checked on 7 November 2026. Tax rules change through Finance Acts; confirm specific cases with KRA or a tax adviser.
The general rule: cash allowances are pay
Section 5(2)(a) of the Income Tax Act lists wages, salary, leave pay, sick pay, fees, commission, bonus, gratuity and “subsistence, travelling, entertainment or other allowance” as gains or profits from employment. In plain terms, if your employer pays you a fixed monthly sum labelled as an allowance, it is added to your salary and taxed under PAYE in the same month. The label does not change the result.
That covers most of the allowances Kenyans see on payslips:
- House allowance: taxable cash pay. Our separate guide to housing allowance in Kenya explains how it relates to the Employment Act’s housing requirement.
- Commuter or transport allowance: taxable when paid as a fixed sum.
- Hardship allowance: taxable cash pay.
- Responsibility, acting and overtime payments: taxable; KRA names overtime expressly.
- Leave allowance: taxable; leave pay is named in the Act.
Exceptions written into the law
The Act and KRA’s guidance carve out a short list of payments that are not treated as taxable pay, or only partly so.
| Payment | Treatment according to KRA and section 5 |
|---|---|
| Reimbursement of work expenses | Excluded where the Commissioner is satisfied it solely reimburses money spent wholly and exclusively to earn the employment income |
| Daily allowance while away on official duty | The first KSh 10,000 per day spent outside your usual place of work is deemed reimbursement and excluded |
| Mileage for official travel | Excluded at the standard Automobile Association of Kenya rate; any excess above AA rates is taxable |
| Meals provided by the employer | Not chargeable up to KSh 5,000 a month (KSh 60,000 a year) |
| Night-out allowance | KRA lists KSh 2,000 per day as not chargeable |
| Medical cover provided by the employer | Listed by KRA as not chargeable to PAYE |
| Employer pension contributions to a registered scheme | Not chargeable up to KSh 30,000 a month; any excess is a taxable benefit |
The difference between an allowance and a reimbursement matters. A fixed transport allowance paid every month regardless of travel is pay. A claim backed by receipts or a mileage log for official trips is reimbursement.
Non-cash benefits
Benefits in kind are also taxable, but only above a threshold. KRA says non-cash benefits are chargeable when their value exceeds KSh 5,000 a month or KSh 60,000 a year, and section 5(2)(b) uses the same annual figure. KRA lists several specific benefits that are taxed:
- Company car: the value of a car benefit where the employer provides a vehicle.
- Housing: the value of residential housing provided by the employer.
- Cheap loans: loans at interest below the prevailing market rate create a benefit. Business Radar reports the current deemed interest rate each quarter.
- Club fees: club entrance and subscription fees are taxable to the extent the employer claimed them as a business expense.
What this means on your payslip
When you check a payslip, add your basic pay and every cash allowance together. That total, less allowable deductions, is the base for PAYE. KRA lists the Affordable Housing Levy, SHIF contributions, registered pension contributions up to KSh 30,000 a month and post-retirement medical fund contributions up to KSh 15,000 a month as amounts deducted before tax. Our guide to how PAYE works in Kenya walks through the order of calculation, and the statutory deductions explainer covers NSSF, SHIF and the levy.
Example: basic pay of KSh 60,000 with a house allowance of KSh 15,000 and a commuter allowance of KSh 5,000 gives gross cash pay of KSh 80,000. All three amounts enter the PAYE calculation. If you also make official trips and claim mileage at AA rates against a logbook, those reimbursements stay outside the taxable total.
Allowances in the public service
Civil servants, teachers and county staff often receive several allowances set by their employer or the Salaries and Remuneration Commission, such as house, commuter and hardship allowances. The tax rule is the same as in the private sector: a fixed cash allowance is part of taxable pay, while documented reimbursements and qualifying travel amounts for official duty follow the exceptions above. The amount of an allowance is decided by the pay scheme; its tax treatment is decided by the Income Tax Act.
Tips for employees
- Ask how each item is classified. If an amount is described as a reimbursement, ask what records the employer keeps to support it.
- Compare offers on gross cash pay. Splitting pay into allowances does not reduce tax, so compare total cash pay and benefits, not the basic figure alone.
- Keep your P9. Your annual P9 form should match the allowances you received. Check it before filing your return.
Tips for employers
- Do not use allowances to avoid PAYE. Fixed allowances are taxable. KRA lists a penalty for failure to deduct of 25% of the tax involved or KSh 10,000, whichever is higher.
- Document reimbursements. Keep receipts, travel authorisations and mileage logs for per diem and mileage payments.
- Write allowances into the contract. Our guide to written employment contracts shows where pay terms belong, and the cost of hiring guide covers the employer’s statutory add-ons.
Bottom line
Cash allowances are taxed like salary. Only genuine reimbursements, defined travel and mileage amounts, small meal and night-out amounts, employer medical cover and pension contributions within the limit stay outside PAYE. If an allowance appears every month whether or not you incur a cost, expect it to be taxed. You can compare roles and pay on the job group salary guide.
Frequently asked questions
Is house allowance taxable in Kenya?
Yes. A cash house allowance is employment income and is added to taxable pay under PAYE.
How much per diem is tax-free in Kenya?
Section 5 of the Income Tax Act treats the first KSh 10,000 per day spent outside your usual place of work on official duty as reimbursement, so it is excluded from taxable pay.
Is mileage reimbursement taxable?
Mileage for official travel at the Automobile Association of Kenya rate is excluded. KRA says any amount above AA rates is taxable.
Are non-cash benefits taxed?
Yes, when their value exceeds KSh 5,000 a month or KSh 60,000 a year, according to KRA. Company cars, housing and below-market loans are taxed benefits.