National Treasury Cabinet Secretary Njuguna Ndung'u on Thursday, 4 May, tabled the Finance Bill, 2023 before the National Assembly, in which the State was seeking to revise a number of legal provisions in order to raise more money for economic development.
Finance Bill 2023 proposed a raft of tax changes in a bid for the government to meet the ambitious budget of Ksh3.6 trillion for the year 2023/2024.
The enthusiastically intense budget was meant to provide a financial mapping for priority sectors that the government is targeting to grow the economy and ease the cost of living.
Notably, CS Njuguna intends to bring solutions to perennial financial deficits that have often forced Kenya to borrow a lot of money from foreign nations and international lenders.
As such, in the Finance Bill 2023, Njuguna introduced a 35 per cent tax rate for income above Kes 500,000 per month and a 3 per cent contribution by employees and employers respectively to finance affordable housing projects.
The revisions are subject to Parliamentary approvals, after which they will be applied to the tax brackets that are used to determine the amount of income tax that an individual is required to pay based on their earnings.
Uhuru Regime Salary Outline
The tax brackets are graduated, meaning that higher earners are taxed at a higher rate than lower earners. The current tax brackets in Kenya are as follows:
i) Income up to Ksh24,000 per month is not taxed.
ii) Income above Ksh24,000 but not exceeding Ksh40,000 per month is taxed at a rate of 10 per cent.
iii) Income above Ksh40,000 but not exceeding Ksh80,000 per month is taxed at a rate of 15 per cent.
iv) Income above Ksh80,000 but not exceeding Ksh180,000 per month is taxed at a rate of 20 per cent.
v) Income above Ksh180,000 but not exceeding Ksh580,000 per month is taxed at a rate of 25 per cent.
vi) Income above Ksh580,000 per month is taxed at a rate of 30 per cent.
Notably, the above tax rates are applicable for resident individuals. Non-resident individuals are subject to a flat tax rate of 25% on all their income earned in Kenya.
Additionally, there are certain deductions and allowances that can be claimed when calculating an individual's taxable income, such as mortgage interest, pension contributions, and insurance premiums.
Ruto Regime Proposed Salary Outline
In the Finance Bill 2023, all employees will continue to pay their income taxes as previous outlined during Retired President Uhurur Kenyatta's regime, except those earning Ksh500,000 and above whose Pay As You Earn (PAYE) had been adjusted upwards to 35 per cent.
As indicated in the Finance Bill 2023, an individual earning Ksh500,000 may very well take home around Ksh266,250 after paying Ksh175,000 (35 per cent PAYE), Ksh15,000 (3 per cent Housing Fund), Ksh30,000 (6 per cent NSSF), Ksh13,750 (2.75 per cent NHIF).
"People with issues with Finance Bill sit down, write an alternative budget that cushions external shocks without IMF, brings down the deficit with no tax measures. And do the numbers," stated David Ndii, President William Ruto's Economic Advisor.
Contextualising Income Tax
Income tax is a tax levied by the Kenyan government on individuals' income, including salaries, wages, and other forms of income. The tax is collected by the Authority, which is the government agency responsible for collecting and enforcing tax laws in the country.
In addition to the income tax, individuals may also be required to pay other taxes, such as value-added tax (VAT) on goods and services, excise duty on specific products such as beer and tobacco, and capital gains tax on the sale of certain assets.
1. Pay As You Earn (PAYE): Employers in Kenya are required to deduct income tax from their employees' salaries on a monthly basis, through a system called Pay As You Earn (PAYE). The amount of tax deducted depends on an individual's income level and is calculated based on the prevailing tax rates.
Pay As You Earn (PAYE) is a system of tax collection that requires employers to deduct income tax from their employees' salaries on a monthly basis. The system is administered by the Revenue Authority, which is the government agency responsible for collecting and enforcing tax laws in the country.
Under the PAYE system, employers are required to deduct income tax from their employees' salaries before paying them. The amount of tax deducted depends on an individual's income level and is calculated based on the prevailing tax rates. The tax rates are graduated, which means that higher earners are taxed at a higher percentage of their income.
2. National Social Security Fund (NSSF) contributions: The NSSF is a social security scheme that provides retirement benefits to its members. Employed individuals are required to contribute a percentage of their monthly salary to the NSSF.
The National Social Security Fund (NSSF) provides retirement, disability, and survivor benefits to eligible individuals. The fund was established in 1965 under the National Social Security Fund Act and is administered by the National Social Security Fund Board.
Membership to the NSSF is mandatory for all employees in the formal sector of the economy, who are required to contribute a percentage of their monthly salary to the fund.
The current contribution rate is 6 per cent of an employee's gross salary, up to a maximum of Ksh18,000 per month. Employers are also required to contribute an equal amount to the fund on behalf of their employees.
3. National Health Insurance Fund (NHIF) contributions: The NHIF is a government-run health insurance scheme that provides affordable health care to its members. In Kenya, employed individuals are required to contribute a percentage of their monthly salary to the NHIF.
The NHIF provides several benefits to its members, including inpatient and outpatient medical treatment, maternity care, and specialized medical procedures such as surgeries and cancer treatment. Members can access these services at NHIF-accredited healthcare facilities across the country.
To access the benefits of the NHIF, members are required to register with the fund and make regular contributions. Members can also track their contributions and access their benefits through the NHIF self-service portal.
4. The Housing Fund is a government initiative aimed at providing affordable housing for low and middle-income earners. It was established under the National Housing Corporation Act in 1965 and is now administered by the Housing Finance Corporation (HFC).
The fund is financed through contributions from employees and employers, who are required by law to contribute 1.5 per cent which the Finance Bill 2023 is seeking revise upwards to 3 per cent of an employee's monthly basic salary to the fund. Self-employed individuals can also contribute voluntarily. The government also provides funding to the Housing Fund through various grants and loans.
The Housing Fund provides various services to its members, including access to mortgage loans, savings plans, and other housing-related products. Members can also access affordable housing units developed by the fund or its partners.
5. Value Added Tax (VAT) is levied on goods and services charged at a rate of 16 per cent. VAT is typically included in the price of goods and services and is paid by consumers.
