The Kenya Revenue Authority has issued a new set of directives to employers on how income tax should be computed on employee earnings, after recent amendments introduced by the Finance Act, 2025.
In a notice on Thursday, October 2, the KRA said the guidelines aim to ensure that all allowable deductions, reliefs, and exemptions are applied correctly and consistently under the Income Tax Act, Cap 470.
"Kenya Revenue Authority (KRA) wishes to inform employers, employees, and the general public that the Finance Act, 2025, amended the Income Tax Act, Cap 470, to mandate employers to apply all relevant tax deductions, reliefs, and exemptions when computing income tax on employee emoluments," KRA said in a statement.
As per the new guidelines, employers will henceforth be required to automatically apply personal relief for all resident employers as outlined in the Income Tax Act, Cap 470. This is to ensure that individuals rightfully benefit from the tax reduction they are entitled to without needing to make additional claims.
Further, insurance relief, mortgage interest deductions and contributions to registered pension schemes and Post Retirement Medical Funds should also be factored in when calculating PAYE, provided they are within the legal limits and are supported by the right documentation.
Deductions such as the Affordable Housing Levy and Social Health Insurance Fund contributions must also be deducted accordingly and factored into the employee's taxable income as required by law. In the statement, KRA emphasised that employers should remain compliant with the implementation of statutory deductions.
Another key point to note is that employees who hold valid tax exemption certificates will continue to enjoy tax exemptions, but only within the limits highlighted by the Income Tax Act. Before applying for exemptions, employers are expected to validate these certificates.
PAYE returns are also supposed to be submitted accurately and in a timely fashion to reflect all deductions and reliefs claimed. This is a particularly crucial step, as it ensures that employee tax liabilities are computed correctly and returns match the deductions on record.
Employers seeking clarification on the updated guidelines have been urged to visit the nearest Tax Service Office (TSO) or reach out to the taxman through the KRA call centre.
Notice to Employees
On their part, employees have been advised to submit all relevant documentation, including certificates, receipts, or other valid proofs to support claims made. If these certificates are provided promptly to their employers, applicable reliefs and deductions can be correctly factored in.
