Kenyans to Pay Different Taxes From January 2018

  • Kenyan workers will benefit from a slight reduction in their salary taxes from January when the pay-as-you-earn (PAYE) bands will be expanded by a further 10 percent as promised in last year’s budget.

    The income tax reforms Treasury Secretary Henry Rotich announced in the March 2017 budget speech will increase taxpayers’ monthly personal relief (MPR) from Sh1,280 to Sh1,408.

    These changes in PAYE bands and personal relief will yield monthly tax savings ranging from Sh184 to Sh667.5 depending on an individuals' salary.

    The changes will raise the effective tax-free income threshold from Sh12,260 to Sh13,486, highly benefitting those at the bottom of the income pyramid such as security guards, waiters, messengers and cooks.

    [caption caption="Treasury Cabinet Secretary Henry Rotich"][/caption]

    Tax savings, which amount to about one percent for most employees, will, however, be eroded by inflation which averaged to 8.1 percent in the past 12 months.

    The changes will benefit high-income earners the most in absolute terms, with those paid a gross salary of Sh50,000 and above set to record monthly savings of Sh667.5.

    Employees with lower salaries will get smaller tax cuts starting, for instance, at Sh184 per month for those earning Sh20,000 whose tax will fall to Sh977 from Sh1,161 after the relief is deducted.

    While low-income earners have gained less from the changes in the PAYE taxes, they are the exclusive beneficiaries of tax exemption on their bonuses, retirement and overtime pay that took effect in January last year.

    The taxable floor will rise to Sh147,580 per year or Sh12,298 monthly and the first band will be taxed at a rate of 10 percent, with the levy rising in a series of taxable income bands.

    [caption caption="The new tax band"][/caption]

    The highest band will be hoisted to start at Sh47,059, contributing to the tax savings for those with relatively higher salaries. While the bands were increased, the rates applicable were not changed.