Explainer: How New Tax Law Will Affect Your December Salary

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On 13 December, President Ruto signed into law seven different bills, including the Tax Laws (Amendment) Bill.

With the Tax Laws (Amendment) Bill now becoming law, the contributions to the Affordable Housing Levy have been altered. This means that contributions to the Affordable Housing Levy or post-retirement medical funds can now be deducted from payable tax liabilities to prevent double taxation.

This change is expected to bring relief to Kenyans who had expressed concerns over heavy taxation.

However, this relief may not come as quickly as many Kenyans anticipate. The effective date for all provisions of the Tax Law is December 27, 2024. This has caused uncertainty in the processing of December's payroll.

President William Ruto and his deputy Rigathi Gachagua laid the stone for the building of affordable houses in Nanyuki on January 10, 2024.
President William Ruto and former DP Rigathi Gachagua laid the stone for the building of affordable houses in Nanyuki on January 10, 2024.
William Ruto

This raises uncertainty about whether the new provisions should apply to the entire month of December 2024 or only from the effective date when calculating PAYE (Pay As You Earn) payroll taxes.

A common interpretation suggests that the law would apply proportionately, starting from December 27. However, since PAYE is calculated monthly, this creates confusion about whether the law should apply to the entire month of December or just the last four days.

Kenyans.co.ke spoke to a finance expert, who explained how the new law will affect your December salary and the options available regarding the amount of money you will take home this festive season.

According to him, finance professionals are grappling with the decision of whether to process the payroll before the effective date or later, especially now that employees are entering the festive season.

However, he explained that Kenyans have several options that will affect their take-home pay.

If your company's accountant decides to calculate the payroll before the effective date of the law, you would receive a smaller pay but get it earlier.

On the other hand, if your company's accountant decides to wait until the effective date to calculate the payroll, you would receive a larger pay, but you would have to wait longer for it, potentially risking going into the December holidays without funds.

"The twist lies in how finance professionals are grappling with the decisions on when to process the payroll. Depending on when the payroll is calculated, employees will either go home with less money, but sooner, or more money, but later," the expert explained.

It is important to note that the confusion will only be faced in December because of the festive holidays that see Kenyans get their salaries earlier than the norm. From January Kenyans will enjoy more pay because the housing levy will be deducted from payable tax liabilities.

A graphic showing taxes and the Kenyan flag in the background.
A graphic showing taxes and the Kenyan flag in the background.
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