Starting August this year, salaried employees will see a reduction in salary in their payslips due to a recent ruling by the Court of Appeal.
The Finance Act was approved for implementation, and the government will retroactively apply taxes dating back to July 1, 2023.
The Court of Appeal on July 28, lifted the restraining orders preventing the Act’s enforcement. Consequently, the Kenya Revenue Authority (KRA) authorized to collect the newly introduced taxes, with the aim of generating an additional Ksh211 billion in the 2023/2024 Financial Year.
This means that the new taxes, such as the mandatory housing levy and Pay As You Earn (PAYE) for high-income earners, will go into force at the end of August.
The Act covers an Export and Investment Promotion Levy, a 16 per cent Value Added Tax (VAT) applied to petroleum products and turnover tax.
In a bid to implement these taxes retroactively, the taxman will apply the adjustments to the August payroll to account for the July shortfall.
Under the Housing Levy, all Kenyan employees must contribute 1.5 per cent of their gross monthly income to support the government’s Affordable Housing program. Employers will match these contributions and submit them accordingly.
Therefore, employees who have already received their July 2023 salary will need to make a housing levy contributions for both July and August (amounting to three per cent of their gross monthly salary) and continue with the 1.5 per cent contribution in subsequent months.
In addition to the 1.5% Housing Levy, another tax deduction coming into effect is the increased PAYE, which contains two new rates: 35% PAYE for employees earning more than Ksh800,000 per month and 32.5 PAYE for those earning between Ksh500,000 and Ksh800,000.
For someone earning Ksh600,000 in gross pay, the 32.5 percent tax rate and the 1.5 percent housing charge will take away Ksh11,473.
The Kenya Revenue Authority (KRA) was appointed as the collection agent by the Ministry of Lands after the Act was enacted.
The authority has updated the iTax portal to align with the new tax rates. It has also been reported that KRA prepared its systems for this scenario in case the restraining orders were lifted.