KRA introduces PAYE changes affecting employers, employees

KRA announces PAYE changes impacting employers and employees effective December 27, 2024.

Kenya Revenue Authority (KRA) has announced changes to the computation of Pay-As-You-Earn (PAYE) following the enactment of the Tax Laws (Amendment) Act, 2024.

The tax laws, assented to on December 4 by President William Ruto, seeks to enable the government generate some of the revenue lost after the collapse of the Finance Bill, 2024 while providing relief to employees, retirees and businesses.  

The amendments, which take effect on December 27, will impact how employers calculate taxable employment income.

KRA said amounts deductible in determining taxable employment income include the Affordable Housing Levy under the Affordable Housing Act, 2024; contributions to a post-retirement medical fund, limited to Sh15,000 per month; Social Health Insurance Fund (SHIF) contributions; mortgage interest, up to Sh360,000 annually (Sh30,000 per month) for funds borrowed from specific financial institutions for residential property; and contributions to registered pension or provident funds, capped at Sh360,000 annually (Sh30,000 per month).

However, reliefs for the Affordable Housing Levy and post-retirement medical fund will cease, KRA explained.

The authority also noted gains and profits from employment will exclude the value of benefits, facilities, or advantages if their aggregate value is less than Sh 60,000 per year (Sh 5,000 per month).

At the same time, meals provided by employers valued at Sh 60,000 annually (Sh 5,000 per month) will not be considered taxable income.

Employer-paid gratuities, not exceeding Sh360,000, will be excluded if paid into a registered retirement pension scheme.

“KRA is committed to ensuring support to all persons in their tax compliance journey,” said KRA Commissioner for Domestic Taxes in a notice on Thursday, December 19.