The government has proposed to raise the ceiling of the taxable non-cash benefits from the current Ksh3,000 to Ksh5,000 in a bid to increase employee’s take-home.
Under the proposed changes to the Tax Laws (Amendment) Bill 2024 sent to Parliament, the National Treasury has suggested pushing the limit to Ksh5,000 per month and a total of Ksh60,000 per year. This is up from Ksh36,000 per year under the current law.
Non-cash benefits offered to employees include low-limit loans, club memberships, school fees, or housing, all of which at the moment are taxed.
In the proposal, any amounts below Ksh5,000 per month will be free of tax, while the amounts above that will be taxed. According to the Treasury, the amendment seeks to expand the amount employees can enjoy as non-cash benefits without suffering additional taxation under the employment income tax bracket.
At the moment, if an employer is providing housing, it is taxed based on either the market rental value or 15 per cent of the employee's total income (whichever is higher), with specific exceptions for agricultural employees or directors of companies.
Others like company vehicles, school fees—that is if an employer pays school fees for an employee's dependents directly to the school, it is considered a taxable benefit—and medical insurance. Here, employer-paid medical insurance for employees is generally exempt, and benefits provided to non-employees may be taxed.
The other things that are taxed under the current laws are low-interest loans given by employers to employees at interest rates below the market rate, which are taxable.
Treasury asserts that if the law passes through Parliament, it will encourage employees to save more from their non-cash benefits, thereby increasing their disposable income. This increase in disposable income will enhance their purchasing power, which in turn can spur the growth of small enterprises.
“The amendment also improves the welfare and morale of the employees, thereby improving their productivity at the workplace. Improved productivity translates to higher profits for the employer, which leads to a higher tax contribution,” notes Treasury.
The National Treasury is also proposing to increase the limit deemed as a chargeable employee benefit for meals provided to them by the employer from Ksh4,000 per month, totaling Ksh48,000 per year, to Ksh5,000 per month, amounting to Ksh60,000 per year.
In an interview with KTN News on Wednesday, November 27, Treasury Cabinet Secretary John Mbadi admitted that taxes, especially those levied on formal employment, have affected employees' take-home, denting their purchasing power.
According to Mbadi, at the moment, Kenyans do not have a lot of disposable income, and this can be attributed to the increase in taxes last year.
“If people don’t have money in their pockets If people don’t feel they have enough money in their pocket, commodities will be seen to be high even when they are not,” asserted Mbadi.
