Treasury Cabinet Secretary John Mbadi has proposed that the contributions towards the Social Health Insurance Fund (SHIF) and Affordable House Levy be made deductible allowances, a move that may see Kenyans take home more pay.
Mbadi is proposing that the deductibles be made from workers' gross salaries before taxation to arrive at higher take-home pay for Kenyans.
The change, included in amendments to tax laws, would replace the current system, which gives a tax relief of 15 per cent on these contributions.
"The Bill proposes to amend the Income Tax Act to provide that the following amounts shall be allowable deductions in the computation of taxable income of individuals: contributions to the Social Health Insurance Fund (SHIF), the amount deducted by affordable housing, and contributions to a post-retirement medical fund up to Ksh15,000," the Treasury stated in a preview of the proposed Tax Laws (Amendment) Bill, 2024.
"These amendments will boost disposable income and enhance employees' take-home pay," asserts Treasury.
According to our calculations, the proposals could mean lower monthly taxes for workers, with those earning Ksh50,000 saving about Ksh318, while employees with monthly salaries of Ksh100,000 could save Ksh637 and Ksh500,000 could save Ksh3,187, respectively.
The proposed amendment would repeal the 15 per cent tax reduction provided to the housing levy since March and to the Social Health Insurance Fund (SHIF). Instead, by deducting these fees from gross pay before income tax, employees' overall tax burden would be reduced.
These proposals are seeking to offer relief to Kenyans who have been decrying slimming payslips since President Ruto overtook power and introduced the Affordable Housing Fund and changing increasing NHIF deductions to the new SHIF that see Kenyans go home with less than a third of their pay after taxes.
Despite the slight relief, Kenyans are still worried that their payslips will still continue shrinking. Kenyans began to feel the pinch of the SHIF deductions in October after it was officially rolled out following controversies and attempts to block it.
The revised SHIF rates compel employees earning Ksh100,000 to Ksh1 million to contribute between Ksh1,050 and Ksh25,800, making it the largest payroll deduction after income tax.
Additionally, contributions to the National Social Security Fund (NSSF) increased from Ksh200 to a maximum of Ksh2,160, and a 1.5 per cent housing charge on gross salary, implemented in July last year, has further reduced workers' incomes.
Kenyans are concerned that these deductions may leave them with less than one-third of their gross pay after meeting other financial commitments, potentially violating the Employment Act, which limits deductions to no more than two-thirds of an employee's compensation.
