Employers in Kenya could soon face increased tax burdens and penalties if the newly proposed tax amendments are passed, making compliance with withholding tax deadlines and pension contributions more stringent.
Under the Tax Procedures (Amendment) (No. 2) Bill 2024, employers and individuals responsible for withholding tax payments would face a 10% penalty for failing to withhold or remit taxes within five working days, with no exceptions for delays.
This proposal removes previous leniencies granted by the Finance Act 2023, which required timely tax remittances but lacked defined penalties.
The proposed Finance Bill 2024 also aims to expand withholding tax to goods supplied to public entities, setting rates at 3% for residents and 5% for non-residents.
This withholding tax is levied on employers or income payers directly at the source and differs from the Pay-As-You-Earn (PAYE) tax typically paid by employees.
Another critical aspect of the proposed legislation is the increase in the monthly deductible pension contribution from Ksh20,000 to Ksh30,000, potentially shifting the pension system from an Exempt-Exempt-Exempt (EEE) model to an Exempt-Exempt-Tax (EET) structure.
This would increase the financial burden on employers, who would be responsible for higher pension remittances.
In addition, National Treasury Cabinet Secretary John Mbadi recently confirmed plans to review the National Social Security Fund (NSSF) Act 2024.
Speaking on November 4, Mbadi highlighted that the government seeks to balance pension requirements for private sector employers who may offer their own pension schemes.
Despite legal challenges, the NSSF Act continues to be a contentious issue, with the Employment and Labour Relations Court (ELRC) previously ruling it unconstitutional.
However, in February 2024, the Supreme Court overturned a Court of Appeal suspension of increased pension contributions, sending the case back to the appellate court for further review.
Chief Justice Martha Koome underscored the importance of prioritizing the case due to its broad impact on public interest and prolonged time in the judicial system, signaling that any new rulings could reshape Kenya’s pension landscape.
