Treasury targets pension tax relief with new payment structure
By Lucy Mumbi |
The proposals suggest raising the monthly deductible pension contributions from Sh20,000 to Sh30,000.
The National Treasury has proposed new measures aimed at alleviating the tax burden on pension payments, which could benefit Kenyans planning for early retirement and those seeking to increase their pension savings.
The proposals suggest raising the monthly deductible pension contributions from Sh20,000 to Sh30,000.
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The amendments to the Income Tax Act would also increase the deductible contributions from Sh240,000 to Sh360,000 annually, benefiting both individuals and employers.
This change could encourage more workers to enhance their contributions, leading to greater savings and significant tax benefits by raising the non-taxable income associated with pension contributions.
"The Bill proposes to amend the Income Tax Act to increase the amount deductible in respect of contributions to registered pension or provident funds from taxable income of an individual and also contribution by the employer from Sh240,000 to Sh360,000 per year and Sh20,000 to Sh30,000 per month," Treasury said in the tax laws amendment bill.
Access to funds
The Treasury also aims to allow individuals aged 38 and older to access their pension funds tax-free, provided they have been members of the scheme for at least 20 years. The exemption would also extend to withdrawals made before retirement age due to health reasons.
"The exemption from tax is intended to also apply to withdrawals from the funds before attaining retirement age due to ill health or after attaining 20 years from the date of registration as a member of the fund," Treasury said.
For retirees under the age of 65, lump-sum pension payouts are currently taxed on a sliding scale, with the first Sh600,000 being tax-exempt.
The subsequent Sh400,000 is taxed at 10 per cent, followed by Sh400,000 at 15 per cent, and the next Sh400,000 at 20 per cent, with any amount exceeding Sh1.2 million taxed at 25 per cent.
The proposals are part of a broader plan first introduced in last year's medium-term revenue strategy, which sought to reform the pension tax structure to allow for tax-free withdrawals, regardless of age.
The current proposals aim to revive reforms that stalled after the Finance Bill, 2024, was shelved amid a public outcry against tax increases. At present, only individuals aged 65 and older qualify for tax exemptions on pension payouts.
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