KRA announces changes to PAYE computation under new tax law

Kenya Revenue Authority (KRA) on Thursday issued a public notice informing employers and the general public of significant amendments to the computation of Pay As You Earn (PAYE).

This follows the enactment of the Tax Laws (Amendment) Act, 2024, which President William Ruto signed into law on December 11, 2024. This act will come into effect on December 27, 2024, and affect taxable income deductions, tax reliefs, and exemptions.

According to the notice, from the Commissioner of Domestic Taxes Rispah Simiyu, new deductions will now be allowed in determining taxable employment income.

These include contributions to the Housing Levy, Social Health Insurance Fund (SHIF), and post-retirement medical funds, capped at Sh15,000 per month.

Additionally, employees can claim deductions for mortgage interest on loans from designated financial institutions, up to a limit of Sh360,000 annually, for residential properties they occupy.

Contributions to registered pension or provident funds will also remain deductible up to the same annual limit of Sh360,000.

The Act, however, eliminates reliefs for contributions to the Housing Levy and post-retirement medical funds.

Notably, certain benefits and advantages provided by employers will also be exempt from taxation, provided they fall within specified limits.

These include benefits valued at less than Sh60,000 annually and meals provided by an employer, capped at Sh5,000 per month.

Gratuity payments made by employers into registered retirement pension schemes, up to Sh360,000 per year for each year of service, will also be excluded from taxable income.

Employers and tax professionals are encouraged to familiarise themselves with the updated provisions to ensure accurate adjustments starting with the December 2024 payroll cycle.

The KRA has advised those seeking clarification to reach out via its contact centre or visit any KRA Tax Service Office.