The Kenya Revenue Authority (KRA) has released new rules to guide employers in computing income tax from workers’ earnings, after sweeping reforms introduced by the Finance Act, 2025.
In a public notice issued on Thursday, KRA stated that the new rules are intended to ensure that all reliefs, exemptions, and deductible allowances as provided for in the Income Tax Act (Cap 470) are applied effectively and consistently.
The Finance Act, 2025 has amended the Income Tax Act to require employers to take into account all the relevant tax reliefs and deductions when they calculate PAYE (Pay As You Earn) on employees’ salaries,” the part of the statement read.
One of the most important reforms is that employers themselves are now required to automatically apply personal relief to all resident staff.
That is, eligible staff members will receive their tax reliefs without needing to opt-in i.e., employees will not lose out on what is rightfully theirs by law.
In addition to relief on an individual basis, employers must also include insurance premium, mortgage interest, registered pension contributions, and Post-Retirement Medical Fund contributions in the deductions provided they are within the statutory legal amount and proper documentation is given by the employee.
Employees are also encouraged to incorporate mandatory statutory deductions such as the Affordable Housing Levy and Social Health Insurance Fund (SHIF) contributions in taxable income. KRA reaffirmed conformity with mandatory statutory deductions is not optional.
What About Tax-Exempt Employees?
Employees holding legitimate tax exemption certificates will continue to benefit from the exemptions but within the stipulated in the law. Employers have been directed by KRA to verify these certificates before benefiting from any exemptions.
However, timely and correct PAYE return filing is paramount, the taxman asserts. Employers must ensure all deductions and reliefs are accounted for clearly so that they are not penalized or have discrepancies that affect the employer as well as the employee.
KRA also issued a reminder to the employees, asking them to play their part by producing necessary documents such as receipts or certificates on time to their HR offices.
“This allows employers to process your deductions correctly and ensures you’re not overtaxed,” the notice stated.
For any uncertainties or clarifications, employers are encouraged to visit the nearest Tax Service Office (TSO) or reach out via the KRA call centre.
As Kenya becomes familiar with the new tax regime characterized by the 2025 Finance Act, the taxman is placing the compliance onus not just on the payroll officers, but also on employees to guarantee tax reliefs and deductions find their way to the poorest among them.