KRA Commissioner General Humphrey Watang’a Mulongo.
By Micah Sali
Nairobi,Kenya.
The Kenya Revenue Authority (KRA) has announced significant changes to Pay As You Earn (PAYE) deductions following the enactment of the Tax Laws (Amendment) Act, 2024.
President William Ruto signed the bill into law on Dec. 11, 2024.
The amendments take effect Dec. 27, 2024, and introduce new allowable deductions while eliminating certain tax reliefs.
According to KRA’s public notice, the new deductions include contributions to the Housing Levy, the Social Health Insurance Fund (SHIF), and post-retirement medical funds, capped at 15,000 shillings per month.
The law also allows mortgage interest deductions of up to 360,000 shillings annually for owner-occupied residential properties.
Contributions to registered pension or provident funds remain deductible up to the same annual limit of 360,000 shillings.
The act, however, eliminates relief for contributions to the Housing Levy and post-retirement medical funds.
Employer-provided benefits valued at less than 60,000 shillings annually and employer-provided meals, capped at 5,000 shillings per month, are now exempt from taxation.
Additionally, gratuity payments made into registered retirement pension schemes, up to 360,000 shillings per year for each year of service, are excluded from taxable income.
How the New Law Affects PAYE:
Employee Earning 100,000 Shillings Per Month
Deductions:
Housing Levy: 1.5% of 100,000 = 1,500 shillings
SHIF Contribution: 2.75% of 100,000 = 2,750 shillings
Total Deductions: 4,250 shillings
Taxable Income Before Deductions: 100,000 shillings
Taxable Income After Deductions: 95,750 shillings
Personal Relief: 2,400 shillings
Comparison to Old System:
Without the deductions of 4,250 shillings, taxable income remains 100,000 shillings.
Total Relief:
22,383 – 21,108 = 1,275 shillings per month.
Employee Earning 30,000 Shillings Per Month
Deductions:
Housing Levy: 1.5% of 30,000 = 450 shillings
SHIF Contribution: 2.75% of 30,000 = 825 shillings
Total Deductions: 1,275 shillings
Taxable Income Before Deductions: 30,000 shillings
Taxable Income After Deductions: 28,725 shillings
Personal Relief: 2,400 shillings
Comparison to Old System:
Without the deductions of 1,275 shillings, taxable income remains 30,000 shillings.
Total Relief:
1,500 – 1,181 = 319 shillings per month.
How the Government Benefits:
1. Increased Compliance:
The simplification of relief structures encourages accurate tax reporting and compliance.
2. Social Program Funding:
Deductible contributions to the Housing Levy and SHIF support critical programs in affordable housing and healthcare.
3. Economic Growth:
Higher disposable income for employees can lead to increased consumer spending, stimulating the economy.
4. Efficiency:
Streamlining tax reliefs reduces administrative burdens for the KRA.
Employers are encouraged to familiarize themselves with the changes to ensure accurate payroll adjustments starting with the December 27,2024 cycle.
For clarification, the KRA advises reaching out via its contact center or visiting any KRA Tax Service Office.
