The Kenya Revenue Authority (KRA) has unveiled plans to implement new regulations for computing Pay As You Earn (PAYE) taxes, following the enactment of the Tax Laws (Amendment) Act, 2024. The changes, which will take effect on December 27, 2024, are expected to increase take-home pay for employed Kenyans.
Key Changes to PAYE Rules
- Tax-Deductible Contributions:
The following contributions will now reduce taxable income:- Affordable Housing Levy: Newly categorized as tax-deductible.
- Social Health Insurance Fund (SHIF): Up to a limit of Ksh15,000 per month.
- Post-Retirement Medical Fund Contributions: Subject to the same limit.
- Mortgage Interest Relief:
Employees can deduct up to Ksh360,000 per year (Ksh30,000 per month) in mortgage interest for loans taken to purchase or improve residential premises, provided the loans are from specific financial institutions listed in the Fourth Schedule of the Income Tax Act. - Pension Contributions:
Contributions to registered pension or provident funds and individual retirement accounts remain deductible up to Ksh360,000 per year (Ksh30,000 per month).
Exclusions from Gains and Profits of Employment
KRA also clarified payments that will be excluded from taxable employment income:
- Meal Benefits: The first Ksh60,000 per year (Ksh5,000 per month) for meals provided by employers.
- Gratuity Payments: Amounts not exceeding Ksh360,000 per year paid into registered retirement pension schemes as gratuity or similar payments.
- Minimal Benefits: Any benefit, advantage, or facility provided to an employee valued at less than Ksh60,000 per year (Ksh5,000 per month).
Discontinued Reliefs
KRA also announced that the following reliefs will no longer apply:
- Affordable Housing Relief
- Post-Retirement Medical Fund Relief
Employer Advisory
The tax authority advised employers to align their payroll systems with these changes and ensure compliance starting December 27, 2024.
Public Impact
With the inclusion of more tax-deductible contributions, the changes are designed to provide relief to employees, allowing them to retain more of their earnings. These adjustments reflect the government’s continued efforts to support housing affordability, healthcare, and retirement planning.
For detailed guidance, employers and employees can consult the full notice on the KRA website or contact their tax advisors.
