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The Kenya Revenue Authority (KRA) has issued a public notice outlining significant changes to the computation of Pay-As-You-Earn (PAYE) tax, in line with the Tax Laws (Amendment) Act, 2024.
These adjustments, which take effect from December 27, 2024, introduce new deductible amounts and tax reliefs for employees while also discontinuing certain existing benefits.
Key Changes to PAYE
According to the KRA, the following amendments will apply to December 2024 PAYE calculations and beyond:
Some of the wins for employees include, If one contributes to programs like the Affordable Housing Levy, a post-retirement medical fund, or the Social Health Insurance Fund (SHIF), these amounts can be deducted from your income before tax is calculated, reducing your taxable income.
New Deductions for Taxable Employment Income:
Affordable Housing Levy: Employers will deduct this levy as stipulated in the Affordable Housing Act, of 2024.
Post-Retirement Medical Fund Contributions: Employees can deduct contributions of up to Sh15,000 per month toward post-retirement medical funds
Social Health Insurance Fund (SHIF) Contributions: Full contributions to SHIF are now deductible from taxable income.
Mortgage Interest: A maximum of Sh360,000 annually (Sh30,000 monthly) for mortgages from approved financial institutions used for residential property purchase or improvement.
If you have a mortgage from approved lenders, the interest you pay (up to a certain limit) will also be tax-deductible.
Pension Contributions: Contributions to registered pension or provident funds capped at Sh360,000 annually (Sh30,000 monthly).
This means you can save for retirement while lowering your tax bill.
Tax Reliefs scrapped off
The Affordable Housing Relief and the Post-Retirement Medical Fund Relief have been scrapped.
Exemptions from Gains and Profits:
Benefits, advantages, or facilities provided by employers will not be taxed if their value does not exceed Sh60,000 annually (or Sh5,000 monthly).
Meals provided by employers will be exempt from taxation up to Sh60,000 per year (or Sh5,000 per month).
Employer payments into a registered retirement pension scheme, up to Sh360,000 annually for each year of service, will also be tax-exempt
Implications for Employers and Employees
Employers are advised to update their payroll systems to comply with the new regulations starting December 2024.
Employees are encouraged to review their tax obligations to understand how the changes will impact their net income.
KRA has urged all employers and taxpayers to familiarise themselves with the amendments and reach out for clarification where needed.