Treasury plans 15pc tax relief on retirement medical savings
Treasury Cabinet Secretary Njuguna Ndung'u before the Committee on County Public Investments and Special funds at the KICC, Nairobi, on April 24, 2023.
What you need to know:
- The Finance Bill 2023 said the planned tax relief would be granted to all resident contributors starting January 1, 2024, but capped at Sh60, 000 annually.
- Monthly contributions to the National Social Security Fund (NSSF) and NHIF increased sharply recently.
- The monthly NSSF contributions increased more than four-fold to Sh1,080 a month from Sh200 in February while NHIF members will pay 2.75 percent of their salaries from the current maximum of Sh1,700.
Employee contributing towards post-retirement medical funds will enjoy a 15 percent tax relief in changes proposed by the Treasury to help millions of retirees secure financial comfort and access to medicare.
The Finance Bill 2023 said the planned tax relief would be granted to all resident contributors starting January 1, 2024, but capped at Sh60, 000 annually.
“The proposed provision will encourage individuals to take up a post-retirement medical scheme to safeguard against increasing medical costs in their post-employment years,” tax analysts at KPMG said.
The also proposes to exempt from tax any investment income from a post-retirement medical fund including where the income is not part of a retirement benefits scheme from July 1, 2023.
It further proposes to exempt from tax any payment in the form of funds transferred from a post-retirement medical fund to a medical insurance coverage provider
“This proposal is aimed at encouraging individuals to take up post-retirement medical schemes” the analysts at KPM noted.
This comes as the State imposed a new law to boost contributions by workers towards social protection and healthcare.
Monthly contributions to the National Social Security Fund (NSSF) and NHIF increased sharply recently. The monthly NSSF contributions increased more than four-fold to Sh1,080 a month from Sh200 in February while NHIF members will pay 2.75 percent of their salaries from the current maximum of Sh1,700.
The State has also already rolled out a post-retirement medical scheme for civil servants. The government launched the new contribution pension scheme for civil servants dubbed the Public Service Superannuation Scheme (PSSS) which took effect on January 1, 2021.
In this contributory scheme, public service workers part with two percent of their gross pay towards retirement savings in 2021, rising to five percent in 2022 and 7.5 percent thereafter. The government contributes 15 percent of the gross pay.
Parliament in March set aside Sh1 billion to pay for post-retirement medical insurance coverage for civil servants in the financial year starting July 1.
The Treasury and the State Department of public service have developed a post-retirement health cover for the 663,000 government workers.
“The committee recommends an additional Sh1 billion to the Public Service Human Resource Management and Development to cater for Post-Retirement Medical Insurance Scheme for civil servants,” the Budget and Appropriations Committee (BAC) said in a report on the Budget Policy Statement (BPS) for 2023/24 that was adopted by the House.
The scheme covers all employees of the public service who have been recruited through the Public Service Commission, Teachers Service Commission, the National Police Service Commission, and any other service that the Cabinet Secretary determines to be public service as per the law.
Public servants, unlike workers in the private sector, were not contributing to their pension until January 2021. Their retirement benefits are paid straight from government revenue, largely taxes.
The new pension scheme for civil servants has a medical savings component to help retiring workers avoid the problems of having to meet the high costs of healthcare when they retire.
Medical cover has become critical, especially for the elderly and people affected by chronic conditions who are the worst hit by the out-of-pocket (OOP) expenditure that has continued to rise over the years despite increased budgets by the State for healthcare.
Notably, the Kenya Demographic and Health Survey 2022 report released earlier this year by the Kenya National Bureau of Statistics showed that an estimated 95 percent of poor men and women in Kenya don’t have health insurance.
This lot includes most Kenyans who enjoy medical cover during their working life and retire without any backup after they part ways with their employers.
The negative effects of lack of medical coverage are prominent in Kenya today amid a persistent surge in the cost of healthcare which has triggered desperate measures by households scrambling to source funds to support the treatment of their ailing kin.
Many households have resorted to fundraising through mobile money paybill numbers and social media platforms such as WhatsApp and even surrendering assets as collateral to medical service providers to access medicare for their kin.
Apart from the tax relief on retirement medical funds, the Finance Bill also targets tax exemptions for raw materials used to manufacture pharmaceutical products.
VAT exemptions on raw materials for pharma manufacture would hand a reprieve to patients hard hit by the effect of weakened shilling and high global prices of key inputs.
Most of the medical supplies be it medicines, surgical supplies, or medical equipment are imported. Even those manufactured locally still require several active pharmaceutical ingredients (APIs).
