Employees in the private sector are set to earn more through the payment of Per Diems following proposals by the Treasury to adjust the tax-free rate.
As highlighted by Treasury Cabinet Secretary Njunguna Ndung'u during the budget reading, Per Diem that was Ksh2,000 and below were not being taxed.
However, he acknowledged that many things had changed economically including inflation.
Therefore, as a way of cushioning employees, the tax-free rate was raised to 5 per cent of the gross income of the employee.
"Currently, the tax-free amount on subsistence allowance paid to employees in the private sector for a period spent outside the usual place of work while on official duties is capped at Ksh2,000 per day.
"This is quite low considering the inflation that has occurred over the years. To cushion employees in the private sector from the high cost of living, I propose to review the threshold to an amount not exceeding 5 per cent of the employee's monthly gross earnings," he stated.
The proposal was included in the Finance Bill 2024 and will be discussed by Members of Parliament once the Finance Committee tables its report.
Per Diem are allowances that are paid to employees when they are on official duty outside the office.
The taxman usually treats the first Ksh2,000 paid in a day as reimbursement of expenses incurred while taking the duties.
Notably, with the low limit that had been set, many employees were getting less when they were out of the office.
The proposal also comes at a time when the government wants to make the Housing Levy a deductible tax which will see the taxman calculate the Pay As You Earn based on a lower gross income. This will see salaries Kenyans make more money in the process.
"The Affordable Housing Levy and Pay As You Earn (PAYE) are calculated from the same base leading to double taxation. To address this, I propose to make the Housing Levy a deductible expense.
"This means that there is a tax saving for Kenyans therefore affording Kenyans more money in their pockets."
