Salaried employees will from this month take home less pay after the Court of Appeal's decision to allow the implementation of the Finance Act, which will see the government backdate all the taxes it imposed to July 1, 2023.
On Friday, July 28, the Court of Appeal lifted the conservatory orders barring the implementation of the Act, hence allowing the Kenya Revenue Authority (KRA) to collect the new taxes in a bid to achieve its target of raising an additional Ksh211 billion in the 2023/2024 Financial Year.
This means that the new taxes will take effect at the end of August including the mandatory housing levy and Pay As You Earn (PAYE) for high-income earners.
Other taxes in the Act include the Export and Investment Promotion Levy, 16 per cent Value Added Tax (VAT) on petroleum products and turnover tax. Kenyans.co.ke takes a look at how the new taxes will affect your payslip.
What does it mean to backdate Taxes?
In a bid to backdate the taxes, the taxman will apply retrospective application which means that they will collect the July deficit in the August payroll.
The Housing Levy requires all Kenyan employees to contribute 1.5 per cent of their gross monthly salary towards the government's Affordable Housing programme. On the other hand, employers match the contributions and remit the same.
This means that employees who have already received their monthly salary for July 2023, will have to make Housing levy contributions for both months (three per cent of their gross monthly salary) and 1.5 per cent in the subsequent months.
For instance, an employee earning a gross monthly salary of Ksh50,000 will contribute Ksh1,500 at the end of August, and Ksh750 in the succeeding months.
How much will be deducted from the payslips?
Aside from the 1.5 per cent Housing Levy, another tax provision set to take effect includes the expanded PAYE which introduced two new rates; 35 per cent PAYE for employees earning above Ksh800,000 monthly and 32.5 per cent for those earning between Ksh500,000 and Ksh800,000.
For instance, an employee earning a gross salary Ksh600,000 will be deducted Ksh11,473 because of the 32.5 per cent tax rate as well as the 1.5 per cent housing levy.
How will it be carried out by the KRA?
Following the implementation of the Act, the Ministry of Lands appointed the Kenya Revenue Authority (KRA) as the collection agent. The taxman will now seek to raise an additional Ksh211 billion target in the 2023/2024 financial year.
According to an internal memo issued to its staff, the KRA updated the iTax portal in line with the new tax rates. Reports indicated that the taxman had requested its officials to have the systems ready should the conservatory orders be lifted.
"PAYE has been updated to effect the new bands as per the Finance Act 2023. These changes have also been effected on the unified payroll return with effect from July 1, 2023. Kindly advise taxpayers to download the latest P10 return from their profiles, the updated return has also been updated on teh website," read part of an internal memo from KRA.
What is the Way forward?
Busia Senator Okiya Omtatah moved to court seeking to block the Act from being implemented. The senator argued that the mandatory salary deductions to support President Ruto's Affordable Housing agenda violated Kenyans' rights.
Following his petition, the High Court issued conservatory orders against the implementation of the Act, arguing that Kenyans would be unfairly subjected to taxes.
The State, led by Treasury Cabinet Secretary Njuguna Ndung'u and the Attorney General's office, however, moved to the appellate court seeking to lift the orders, arguing that the situation brought crisis to the government in relation to the government's efforts to raise revenue. The Court of Appeal ruled in the State's favour.
Now the petition moves to a full trial and will be heard by a three-judge bench comprising Justices David Majanja, Lawrence Mogambi and Christine Meoli.
