If you were expecting President William Ruto’s government to revisit the changes in Pay As You Earn (PAYE) any time soon, think again.
The National Treasury has dashed the hopes of workers for a swift reconsideration of PAYE deductions by proposing a significant delay in revisiting the tax structure.
Despite mounting pressure for a revision due to the heavy burden it imposes on salaried individuals, President William Ruto’s government suggests that reviews occur only once every five years. This means that any potential changes may not happen until 2028, a year after the next general election.
The National Tax Policy, unveiled on Thursday, May 30, spearheaded by Treasury CS Prof Njuguna Ndugu, lays out the government's stance on tax revisions. It advocates for a five-year interval for reviewing PAYE, along with all income tax reliefs such as personal, mortgage, and insurance, as well as thresholds and tax bands to adjust for inflation.
Last year, the government initiated a review through the Finance Bill 2023, setting the PAYE rate at 32.5 per cent for individuals earning between Ksh500,000 and Ksh800,000 per month. Those earning above Ksh800,000 face a 35 per cent deduction in PAYE, coupled with additional levies like a 1.5 per cent housing tax and a 2.5 per cent medical insurance tax for state workers.
These measures drew criticism even from Members of Parliament who passed the Bill.
The measures also drew sharp criticism from groups like the Union of Kenya Civil Servants (UKCS), which advocates for reduced taxes on salaried workers. Secretary General Tom Odege has publicly called for the removal of the Housing Levy, denouncing it as an unnecessary burden on workers.
"We particularly want the Housing Levy removed because we deem it unnecessary. It's hurting workers," Odege stated in December.
In last year's draft National Tax Policy (NTP), the National Assembly's Finance Committee acknowledged the need for a review of punitive taxes, including the 35 per cent PAYE, which disproportionately affects individuals amidst escalating inflation. The committee noted there was a need for a review to cushion individuals shouldering a huge tax burden as runaway inflation continues to diminish their incomes.
The committee also highlighted disparities between individual and corporate tax rates, with individuals facing higher rates despite not having the same deductions as corporations.
Furthermore, the Finance Committee recommended a progressive tax band structure to ensure that marginal rates do not surpass the corporate income tax rate, currently set at 30 per cent. It emphasised the need for fairness in taxation, particularly in light of the differing deductions available to individuals and corporations.
Among the proposals issued by the Treasury, are plans to adopt the exempt-exempt-exempt (EEE) method of taxation for retirement benefits. This approach entails deducting contributions to retirement schemes up to a set threshold, exempting investment income within these schemes from taxation, and ultimately exempting pension payments from taxation.
The proposals encompass views from public participation and come as the government seeks to arrest the reducing tax to GPD ratio.
