The Kenya Revenue Authority (KRA) has directed employers to apply revised Pay As You Earn (PAYE) deductions starting December 27, 2024.
In a notice dated Thursday, December 19, KRA outlined plans to enforce the Tax Laws (Amendment) Act, 2024, which introduces a new framework for calculating PAYE. This follows President William Ruto’s signing of the Tax Laws (Amendment) Bill, 2024, into law.
Under the amended law, PAYE contributions for Kenyan employees will now include additional deductible amounts, impacting taxable income calculations.
These changes aim to increase employee take-home pay while streamlining the tax system.
Key Changes to PAYE
New Deductible Amounts for Taxable Income
- Contributions to the Affordable Housing Levy.
- Post-retirement medical fund contributions, capped at KSh 15,000 per month.
- Social Health Insurance Fund (SHIF) contributions.
- Mortgage interest, capped at KSh 360,000 annually (KSh 30,000 monthly).
- Pension or provident fund contributions, limited to KSh 360,000 annually (KSh 30,000 monthly).
Removal of Tax Reliefs
- Affordable Housing Relief.
- Post-Retirement Medical Fund Relief.
Exemptions for Employment Gains and Benefits
- Benefits, advantages, or facilities valued below KSh 60,000 annually (KSh 5,000 monthly) will be excluded from taxable gains.
- The first KSh 60,000 annually (KSh 5,000 monthly) for meals provided by employers will be exempt from taxation.
- Gratuity or similar payments made by employers up to KSh 360,000 annually will not be included in taxable income.
KRA emphasized that the updated system simplifies tax compliance while providing specific tax breaks to employees. Employers are expected to align with the new PAYE framework by the December deadline.
