I did. There's nothing like having your gross salary = your net salary and it looks good on the bank statement

Honestly, I believe there are many people operating like that outside KRA's eyes. Even just opening a bank account outside Kenya and having them deposit 3/4 of your salary there and only pay PAYE on a 1/4. How will KRA ever find your foreign account, unless you go through an extremely messy divorce à la Gichuru ex KPLC?

I believe some of this cash is being used to speculate in our fake housing boom: Bid to Track Source of Kenya Property Development Cash

The rule is very simple. Income earned in Kenya from employment is taxed - even smuggling. The employer is an agent of KRA who collects from the employee (what you are calling deducting at source). It is your duty to file returns at the end of each year where you declare all income, all tax deductions made by employer supported by P9 then pay the difference.
If you work for a department of a foreign company, I believe the tax rates are even more punishing (37.5% with no allowable deductions).
Lipa ushuru else if they audit you, it will be a very painful experience.

Thanks Ash for the practical example.
You've educated me plus everybody else.

Weeee,my company is on migingo island.
Foreign based! and exempted from local taxes.


believe me at ur own risk

@essyk Ash Ock has pointed out the risks of your arrangement.

Note the following:

1. For employees of a foreign branch, the obligation to withhold PAYE is on the person making the payments to the employees IN KENYA.

2. The law appoints you the Agent of the foreigner. Technically KRA can therefore require that:
a) You pay the tax;
b) You pay the penalties (25%);
c) You pay the interest (2% per month);
d) You are prosecuted for tax fraud (2 yrs imprisonment, or fine of 200k, or x2 the tax evaded).

3. For corporation tax (tax payable by the foreign company in Kenya), it depends on:
a) The kind of activities the company is engaged in Kenya (through the Branch) i.e if they amount to trading;
b) How long the branch has operated in Kenya ie 6 months or more;
c) If company is paying tax in Kenya through other means (by withholding tax);

4. If caught up in situations 1&2 above, you need to shift the risk of KRA assessment for tax from YOU to the Foreign company and comply with tax requirements.

5. You also need to minimize the risk of back taxes, penalties and interest assessment on the foreign company. This can be done.

If interested in 4&5, give me a shout at sparkly99@ovi.com then we can go through the specifics.