Kenyans Earning Less Than Ksh40,000 to Pay More Tax in New Finance Bill Proposal

Deloitte & Touché LLP presenting their submissions on the #FinanceBill2024
Deloitte & Touché LLP presenting their submissions on the Finance Bill 2024 on May 28, 2024.
National Assembly Committees

Employees earning less than Ksh40,000 per month are expected to pay more tax than other salaried Kenyans if the Income Tax Act is amended as proposed in the Finance Bill, 2024. 

The Bill, if approved by Parliament, will set the non-taxable limit of amounts received by an employee as payment of subsistence, travelling, entertainment or other allowance in respect of a period of work while on official duty to 5 per cent of gross earnings. 

According to the current provisions of the Income Tax, the rate is set at Ksh2,000 per day. 

This means that Kenyans earning less than Ksh40,000 used to be allocated a non-taxable amount of Ksh2,000 per day, but calculating with the new percentage, that amount will reduce significantly. 

Kenyans lining up for job applications
Kenyans lining up for a job interview in Nairobi in 2019.
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For example, a person earning Ksh30,000 will only have a non-taxable limit of Ksh1,500 per day from Ksh2,000. 

At the same time, the new proposal will benefit high-income earners as the non-taxable limit increases. 

Deloitte and Touche LLP, making their submissions to the National Assembly on Tuesday, May 28, urged Parliament to reject the proposed amendment. 

In place, they urged the National Assembly Finance Committee to replace the clause with, “where the employer has no policy or an employee’s gross earnings are below Ksh 40,000 per month, the first Ksh5,000 per day be deemed a reimbursement of the amount expended and shall be excluded in the calculation of his gains and profits.”

The audit firm stated that should the 5 per cent proposal be passed by parliamentarians, it would increase the administration costs for employers without a per diem policy. 

As such, the companies will be required to ensure their employees account for all amounts paid out as subsistence allowance or subject the full allowance to Pay As You Earn (PAYE). 

“Subjecting financial services to VAT at 16 per cent will increase their costs and will be detrimental to the government’s effort of making Kenya a financial hub and a gateway to Africa,” the audit firm added. 

Parliament
National Assembly proceedings on February 21, 2024.
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National Assembly of Kenya