Workers get tax relief on housing, SHIF deductions

Deductions towards the Housing Levy, the Social Health Insurance Fund (SHIF), and post-retirement medical funds will not be taxed twice starting this month, the Kenya Revenue Authority (KRA) said, providing relief to salaried workers.

Currently, even after these statutory contributions are deducted from the gross salaries of employees, the KRA still subjects these amounts to Pay As You Earn (PAYE), increasing the tax liability for most employees.

In a statement on Thursday, December 19,  KRA also listed mortgage interest amounts not exceeding Sh30,000 per month and monthly pension contributions of similar amounts as other deductions that will not be subjected to PAYE.

This is a relief for salaried workers whose pay slips have been affected by a raft of new statutory deductions, including the 1.5 percent housing levy and the 2.75 percent contributions towards SHIF for the better part of this year.

“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 shall be applicable in the computation of PAYE for December and subsequent periods…” reads the statement as it lists the new deductions.

This effectively frees up some additional income for workers who have been paying PAYE on the same amounts used for these deductions.

“It is to give you a soft landing as an employee. At least I feel like I will not be charged twice for the same amount,” said Samuel Mwaura, a Tax Partner at Grant Thornton, an audit firm. The biggest beneficiaries will be the highly paid employees whose PAYE payments are substantial. “For them (highly paid workers), the benefits will be significant, but for those paying PAYE at 15 per cent, the impact will be modest or at worst negative,” said a KRA official.

Instead of deducting these amounts, the government had offered relief, such as affordable housing relief and post-retirement medical fund relief, which have both been scrapped.

For statutory deductions such as pensions, the taxman deducts the contribution first before taxing the remaining amount. For example, workers with an income of more than Sh800,000 who paid PAYE of 15 percent would enjoy affordable housing relief of 15 per cent of Sh12,000 (Sh1,800).

But with the affordable housing levy being deducted, the worker is likely to make savings of more than a third of the Sh12,000 affordable levy.

The value of deductible non-cash benefits of any nature has been increased from the current maximum of Sh36,000 per annum to Sh60,000 per annum, offering a major benefit to employees with additional perks without increasing their taxable income. Employees will also enjoy enhanced meal benefits, with the government increasing the allowable value of meals served to staff in a canteen or cafeteria operated or established by the employer, or provided by a third party who is a registered taxpayer. The meal benefit has been raised from Sh48,000 per annum (Sh4,000 per month) to Sh60,000 per year (Sh5,000 per month).

dakure@ke.nationmedia.com