The Retirement Benefits Authority (RBA) has proposed changes to section 5 (2) (a) of the Income Tax Act to exempt staff of regulatory authorities from paying tax on benefits arising from the exempt status of their employer.
Section 5 (2) (a) of the Income Tax Act states that any taxable benefit, including leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, pension, gratuity, or subsistence, travelling entertainment, or other allowances received in respect of employment or services rendered, is subject to taxation.
However, RBA wants changes to be made to the act so that employees of regulatory authorities (government agencies) do not have to pay tax on certain benefits from their employers, such as leave pay, sick pay, bonuses, pensions, and travel allowances.
RBA proposes that the taxes on these benefits be paid by the employer, to enable employees to save more for their retirement.
"Where any taxable benefit, including leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, pension, gratuity, or subsistence, travelling, entertainment, or other allowances received in respect of employment or services rendered paid by the employer who is tax-exempt shall be payable by the employer," read part of the proposal by RBA.
According to RBA, this move is aimed at ensuring that employees of tax-exempt entities are incentivised to save in pension schemes and that their pension benefits are protected from erosion.
These changes aim to encourage employees to save more for their pensions by ensuring their pension benefits aren't reduced by taxes.
Currently, regulatory authorities are required to send 90 per cent of their extra money to the National Treasury. These authorities are recognised as tax-exempt, meaning they don't pay taxes on their income.
Despite being tax-exempt, employees of these authorities are still taxed on employer pension contributions above Ksh360,000 a year at a rate of 30 per cent. This discourages them from saving more in pension schemes.
The RBA suggests treating the 90 per cent surplus sent to the National Treasury as equivalent to income tax.
This way, the regulatory authorities can cover the tax for their employees, and the employees will only be taxed when they receive their pension benefits in the future.
"The amendment will create equity between employees of regulatory authorities and any other employees, both public and private, within Kenya contributing to a retirement benefits scheme," RBA argued.
Regulatory authority staff includes those who work in the Insurance Regulatory Authority (IRA), Energy and Petroleum Regulatory Authority (EPRA), Tourism Regulatory Authority (TRA), and Sacco Societies Regulatory Authority (SASRA), among others.
This proposal is among the many that RBA has made as it seeks opinions from Kenyans before they are passed in July 2025.
