The Kenya Revenue Authority (KRA) has directed employers to implement new Pay As You Earn (PAYE) deductions from December 27, 2024, following the signing of the Tax Laws (Amendment) Bill, 2024, into law by President William Ruto. This amendment introduces significant changes to the PAYE system, aiming to increase employee take-home pay and simplify tax compliance.
In a notice issued on December 19, KRA highlighted that the changes, effective next year, would impact the way taxable income is calculated. Key adjustments include new deductible amounts and the removal of certain tax reliefs.
Key Changes to PAYE Deductions:
- New Deductible Amounts:
- Contributions to the Affordable Housing Levy.
- Post-retirement medical fund contributions, limited to KES 15,000 per month.
- Contributions to the Social Health Insurance Fund (SHIF).
- Mortgage interest payments, capped at KES 360,000 annually (KSh 30,000 monthly).
- Pension or provident fund contributions, also limited to KES 360,000 annually (KSh 30,000 monthly).
- Removal of Certain Tax Reliefs:
- Affordable Housing Relief and Post-Retirement Medical Fund Relief have been removed from the system.
- Exemptions for Employment Benefits:
- Benefits, advantages, or facilities valued below KES 60,000 annually (KES 5,000 monthly) will no longer be included in taxable income.
- The first KES 60,000 annually (KES 5,000 monthly) for meals provided by employers will be exempt from taxation.
- Gratuity or similar payments up to KES 360,000 annually will not be taxed.
KRA emphasized that the revised tax framework is designed to streamline the tax system and enhance employee benefits. “The new system simplifies tax compliance while offering specific tax breaks, especially in the housing and health sectors,” KRA stated in its notice.
Employers are expected to align their payroll systems with the new regulations by the December 27 deadline. These changes are part of the government’s broader efforts to ensure a more efficient tax system while boosting employees’ disposable income.
