Section 37

Deductions of tax from emoluments 

(1)

An employer paying emoluments to an employee shall deduct therefrom, and account for tax thereon, to such extent and in such manner as may be prescribed.

(1A) An employer shall, in computing the allowable deductions under subsection (1), grant an employee all applicable deductions, reliefs and exemptions provided under this Act. (FA 2025-wef 1st July-2025 S19).

(2)

If an employer paying emoluments to an employee fails -

• (a) to deduct tax thereon;
• (b) to account for tax deducted thereon; or
• (c) to supply the Commissioner with a certificate provided by rules prescribing the certificate, Deleted by (FA 2025-wef 1st July-2025 S19).

the Commissioner may impose a penalty equal to twenty-five percent of the amount of tax involved or ten thousand shillings whichever is greater and the provisions of this Act relating to the collection and recovery of tax shall also apply to the collection and recovery of the penalty as if it were tax due from the employer:  Provided that, instead of the Commissioner imposing a penalty under This subsection, a prosecution may be instituted for an offence under section109(1)(j).

(3) Deleted by (Finance Act 2022-wef-01-July-2022) 

The Commissioner may remit the whole or part of any penalty imposed under this section up to a maximum of five hundred thousand shillings per employer per annum:
Provided that -
(a) the Commissioner may remit any amount of penalty in excess of one hundred thousand shillings per employer per annum with the prior written approval of the Minister; and
(b) the Commissioner shall make a quarterly report to the Minister of all penalties remitted during the quarter.  

(4)

Tax deducted under this section from the emoluments of an employee shall be deemed to have been paid by that employee and shall be set off for the purposes of collection against tax charged on that employee in respect of those emoluments in an assessment for the year of income in which those emoluments are received.

(5)

Where a person who is required under this section to deduct tax fails to remit the amount of any deduction to such person as the Commissioner may direct within the time limit specified in rules made under section 130, the provisions of this Act relating to the collection and recovery of tax, and the payment of interest thereon, shall apply to the collection and recovery of that amount as if it were tax due and payable by that person, the due date for the payment of which is the date specified in rules made under section130 by which that amount should have been remitted to the payee.

(5A)

An employer aggrieved by the imposition of a penalty by the Commissioner or any other decision taken by the Commissioner under this section may, by notice in writing to the Commissioner, within thirty days, object to such imposition or decision. Finance Act 2010 Effective 11 June 2010 

(5B)The provisions of this Act in respect of objections shall, mutatis mutandis, apply to objections under this section.  Finance Act 2010 Effective 11 June 2010  Deleted by (FA 2025-wef 1st July-2025 S19).

(6)  Deleted by Finance Act, 2016 Effective 9th June 2016  and  TPA 2nd Sch Para 2

An employer aggrieved by the imposition by the Commissioner of penalty, or by any other decision taken by the Commissioner under this section, may appeal against such imposition or decision to the local committee within thirty days after the service of the notice of the imposition or communication to him of the decision, as the case may be: 
Finance Act 2008 Effective 13 June 08  Provided that, where the appeal relates to the imposition of a penalty- 
(i) the employer shall, prior to making the appeal, pay all the tax due and the penalty imposed under this section; and (ii) the appeal shall be limited to the determination of the question as to whether the employer has complied with the provisions of this Act and any regulations made thereunder relating to the deduction of tax from the emoluments of employees.

(7) Deleted by Finance Act, 2016 Effective 9th June 2016 

Subject to subsection (6) the provisions of this Act relating to appeals to local committees against assessments shall apply mutatis mutandis to appeals under this section.

(37A)

Penalty for failure to make deductions under Section 35,36 and 37 

Where a corporate body which is required to make a deduction under sections 35, 36 or 37 fails to remit the deducted amount as required or directed by the Commissioner, every director and every officer of the corporate body concerned with the management thereof, shall be guilty of an offence, unless he proves to the satisfaction of the court that he did not know, and could not reasonably be expected to know that the deducted amount had not been remitted and that he took all reasonable steps to ensure that the offence was not committed, and shall be liable to a fine of not less than ten thousand shillings but not more than two hundred thousand shillings or to imprisonment for a term not exceeding two years or to both.

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