The Kenya Revenue Authority (KRA) has announced its plans to enforce the Tax Laws (Amendment) Act, 2024, introducing significant changes to the computation of Pay As You Earn (PAYE).
In a notice dated Thursday, December 12, the authority stated that the new rules would take effect on December 27, 2024, and are expected to increase take-home pay for employed Kenyans.
According to the notice, taxable income will be redefined to include deductions for specific contributions. These include the Affordable Housing Levy, the Social Health Insurance Fund (SHIF), and contributions to a post-retirement medical fund, subject to a maximum of Ksh15,000 per month.
“Amounts deductible in determining taxable employment income also include mortgage interest not exceeding Ksh360,000 annually (Ksh30,000 monthly) for loans borrowed from one of the first six financial institutions specified in the Fourth Schedule to the Income Tax Act, for purchasing or improving residential premises,” the notice read.
Contributions to registered pension or provident funds or individual retirement funds up to a limit of Ksh360,000 per year (Ksh30,000 per month) will also qualify for deductions.
KRA further clarified that the Affordable Housing Relief and Post-Retirement Medical Fund Relief will no longer apply under the new regulations.
Additionally, specific payments will be excluded from taxable employment income. These include:
- The first Ksh60,000 annually (Ksh5,000 monthly) on the value of meals provided by an employer.
- A maximum of Ksh360,000 paid as gratuity per year of service into a registered retirement pension scheme.
- Benefits or facilities valued below Ksh60,000 annually (Ksh5,000 monthly) will also not be considered as gains or profits from employment.
These changes aim to align with the revised tax policies while easing the tax burden on employed individuals. Employers are advised to adjust their payroll systems accordingly before the enforcement date.
