Treasury Cabinet Secretary John Mbadi has announced plans to abolish the personal tax relief currently given to salaried workers as the government prepares changes to Pay As You Earn (PAYE).
Mbadi said the Treasury wants to adjust the income tax bands so that employees earning KSh32,333 or less per month do not pay PAYE, instead of relying on the existing relief system.
Speaking on Thursday, October 22, the CS said the proposals would be presented to Parliament next week. The changes will also include a proposal to remove stamp duty on land transactions valued below KSh1 million.
“Recently you have heard us talk about some changes in PAYE bands to exempt those earning up to KSh32,333 from tax. In fact, we want to do away with this thing called relief,” Mbadi said.
Under the current system, employees receive personal tax relief of KSh2,400 every month, adding up to KSh28,800 annually. The amount is deducted from the income tax calculated on an employee’s salary, reducing the PAYE remitted to the Kenya Revenue Authority (KRA).
For instance, an employee whose monthly income tax comes to KSh5,000 pays KSh2,600 after the KSh2,400 relief is applied.
The relief reduces the tax burden on workers, particularly those on lower salaries. Removing it would therefore need to be accompanied by changes to the tax bands if the government is to achieve its stated goal of exempting workers earning KSh32,333 and below.
The current PAYE system applies different tax rates depending on how much an employee earns. The first KSh24,000 of monthly taxable income is taxed at 10 per cent, while the next KSh8,333 attracts a rate of 25 per cent, with higher rates applying to additional income.
The final effect of the proposed changes on individual payslips will depend on the tax bands and other measures contained in the proposal submitted to Parliament.
The announcement follows President William Ruto’s address during the 63rd Mashujaa Day celebrations in Uasin Gishu on Tuesday, October 20, when he said the government had raised the proposed PAYE exemption threshold from KSh30,000 to KSh32,333 per month.
Ruto said he had directed the National Treasury to submit the proposal to Parliament for consideration.
“We have prepared a proposal to exempt Kenyans earning KSh32,333 per month or less from paying PAYE income tax. For workers on modest income, every shilling saved means more money for food, transport and school expenses,” the President said.
The proposals are yet to go through Parliament, meaning the changes have not taken effect.
