No tax relief on contributions to Social Health Insurance Fund - KRA
By Lucy Mumbi |
In a notice, the authority said the change is outlined in the current stipulations of the Income Tax Act.
The Kenya Revenue Authority (KRA) has clarified that taxpayers cannot get insurance relief or a tax reduction for contributions made to the new Social Health Insurance Fund (SHIF), which was recently established under the Social Health Insurance Act.
In a notice, the authority said the change is outlined in the current stipulations of the Income Tax Act.
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Previously, the Income Tax Act allowed people to claim tax relief on contributions to the National Health Insurance Fund (NHIF), as long as their policy started on or after January 1, 2007.
Under the Finance Act, 2021, an amendment to Section 31(1) of the Income Tax Act (ITA), Cap 470, extended insurance relief to include NHIF contributions.
According to the amendment, relief covered 15 per cent of insurance premiums plus NHIF contributions, capped at Sh5,000 per month or Sh60,000 per year. This amendment took effect on January 1, 2022.
However, with NHIF now replaced by SHIF, KRA explained that this tax relief does not currently apply to SHIF contributions.
"The relief as currently provided under the Income Tax Act does not apply to contributions made to the SHIF under the Social Health Insurance Act," KRA said.
It noted that there is a proposal in the 2024 Tax Laws (Amendment) Bill that, if passed, would allow people to deduct SHIF contributions from their taxable income in the future, providing a similar tax benefit.
However, the authority said this has not yet become law, so the tax relief does not apply to SHIF contributions as of now.
Beginning in January 2022, workers enjoyed Sh300 million tax relief on NHIF contributions.
A report by the National Treasury on tax expenditures – or foregone taxes by the state due to tax reliefs – showed that insurance relief increased significantly by 31.1 per cent in 2022 as compared to 2021.
"The increase is attributed to the introduction of relief on NHIF contributions through the Finance Act, 2021, that amended Section 31 (1) of the Income Tax Act to allow for relief on contributions to NHIF, effective from January 1, 2022," the National Treasury said.
Insurance relief also increased from Sh652.75 in 2021 to Sh856.17 last year, boosted by increased contributions to the state-backed insurer.
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