KRA Announces Changes in PAYE Deductions, Starting With the December Salary

The Kenya Revenue Authority (KRA) has notified employers and members of the public of its plan to enforce the Tax Laws (Amendment) Act, 2024 from December 27, 2024, which will see Kenyans take home more money in terms of salaries ahead of the New Year.

The notice follows the enactment into law, seven different bills, including the Tax Laws (Amendment) Bill, which alters contributions to the Affordable Housing Levy (AHL).

As per the Tax Laws (Amendment) Act, the changes will see amounts deductible in determining the taxable employment income now include amounts deducted for the Housing Levy pursuant to the Affordable Housing Act, 2024, a move which will see Kenyans take home more money at the end of this month.

“Kenya Revenue Authority (KRA) informs employers and the public that pursuant to the Tax Laws (Amendment) Act, 2024 which comes into force on 27th December 2024, the following changes shall be applicable in the computation of PAYE for December 2024 and subsequent periods,” the taxman announced in a statement.

The amount deductible in determining the taxable income will also include a contribution to a post-retirement medical fund subject to a limit of Ksh15,000 per month as well as contributions made to the Social Health Insurance Fund (SHIF).

Furthermore, the amount deductible includes mortgage interest, not exceeding Ksh360,000 per year (Ksh30,000 per month), upon money borrowed by a person from one of the first six financial institutions specified in the Fourth Schedule to the Income Tax Act, to purchase or improve premises occupied by the person for residential purposes.

“Contribution made to a registered pension or provident fund or a registered individual retirement fund up to a limit of Ksh360,000 per year (Ksh30,000 per month),” added KRA.

KRA also notified employers and Kenyans that the following tax reliefs shall cease to apply: Affordable Housing Relief, Post-Retirement Medical Fund Relief and Gains and Profits from employment which shall not include:

1. The value of a benefit, advantage, or facility granted in respect of employment, where the aggregate value is less than Ksh60,000 per year (Ksh5,000 per month).
2. The first Ksh60,000 per year (Ksh5,000 per month) on the value of meals provided by an employer. 
3. An amount not exceeding Ksh360,000 paid by an employer as a gratuity or similar payment in respect of employment or services rendered for each year of service paid into a registered retirement pension scheme.

The changes are expected to bring relief to Kenyans who had complained for months over heavy taxation that has seen them take home less than what they used to, forcing them to implement their own cost-saving measures.

There hoever lies an issue; the new provisions of the Tax Law take effect on December 27, 2024, a matter which has caused uncertainty in how December payrolls will be processed. The uncertainty is on whether the new provisions would apply to the whole of December 2024 or from the effective date when PAYE (Pay As You Earn) payroll taxes.

Common belief suggests that this law would take effect from December 27, but calculation of PAYE leaves confusion on whether the law would apply to the month of December or the last four days of the month. Finance professionals are at a crossroads on whether to process the payroll before the effective date or later, given that most companies are entering the festive season.

However, Kenyans have options that will affect their pay, that is in the event your accounts person decides to calculate the payroll before December 27, you’ll take home less but get your funds earlier. Should your accountant decide to hold until the effective date to calculate the payroll, you could take home a larger pay but risk waiting longer for it, possibly going into the Christmas period without your monthly funds.

However, the confusion is only in place in the month of December because of the festive season which usually sees Kenyans take home their salaries earlier than usual, though they have to contend with longer periods between then and the end of January to get their next paycheck. However, from January, the new law will see Kenyans enjoy more pay as the housing levy will be deducted from payable tax liabilities.