The Kenya Revenue Authority (KRA) has recently updated its iTax portal to align with the Finance Act. The new Pay As You Earn (PAYE) rates will take effect from August 2023, with two additional income tax brackets at 32.5 percent for those earning between Kes 500,000 and Kes 800,000 monthly, and 35.0 percent for those earning above Kes 800,000. Consequently, individuals earning Kes 500,000 or more per month can expect a decrease in their take-home pay during the August 2023 pay cycle. To put this into context, employees with a gross salary of Kes 600,000 per month will witness a reduction of Kes 11,473.0, resulting in a take-home pay of Kes 413,943.0, taking into account the new 32.5 percent tax rate and the introduction of the Housing Tax at 1.5 percent of gross pay.
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Similarly, those earning a gross salary of Kes 800,000 per month will see their take-home pay decrease from Kes 565,416 to Kes 548,988 when accounting for the Housing Tax and the new 35.0 percent tax rate. While it is not confirmed if collections will be backdated to July 2023, the KRA’s internal memo suggests that the effective dates for the new tax rates will follow the schedule specified in the Finance Act 2023—July 1st, 2023; September 1st, 2023; and January 1st, 2024. Following the Court of Appeal’s decision to lift conservatory orders on July 28th, KRA is now permitted to implement the Finance Act 2023 and collect an estimated Kes 211.0 billion in taxes between July 2023 and June 2024. However, several parties, including Busia Senator Okiya Omtatah, are planning to challenge this decision at the Supreme Court.
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The updated iTax portal also includes the incorporation of the Housing Tax, where 1.5 percent of employees’ gross salary is contributed by both the employee and employer towards the Housing Development Fund. The government aims to collect Kes 83.0 billion through the Housing Tax in the current financial year. The iTax portal will undergo additional updates that will be contingent upon the outcome of the petition concerning the Finance Act 2023. These updates will encompass the incorporation of provisions for Digital Assets Tax at a rate of 3.0 percent, which is scheduled to be implemented on September 1. The Digital Assets Tax will apply to transactions involving digital assets and will be an important addition to the tax regulations in Kenya’s evolving financial landscape.
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