KRA Rules Out Tax Relief on SHIF Deductions
The Kenya Revenue Authority (KRA) has dashed any hopes of Kenyans receiving higher take-home pay after the Social Health Insurance Fund (SHIF) deductions.
In an official announcement, KRA addressed a previous proposal by the Ministry of Treasury, which had suggested that SHIF and Affordable Housing contributions should be deducted from employees’ salaries before calculating taxable income.
Treasury Cabinet Secretary John Mbadi had recommended that these deductions be made from the gross salary of workers before taxation, aiming to increase net pay for Kenyans.
“The Bill suggests modifying the Income Tax Act to allow deductions for contributions to the Social Health Insurance Fund (SHIF) in the calculation of an individual’s taxable income,” the Treasury explained in a preview of the proposed Tax Laws (Amendment) Bill, 2024.
However, KRA clarified that this relief does not extend to deductions for the SHIF, as outlined in Section 31 of the Income Tax Act regarding insurance. Section 31 of the Act allows personal tax relief, including for health insurance contributions, but it was updated in January 2022 to enable taxpayers to claim relief for contributions to the National Hospital Insurance Fund (NHIF).
This amendment applies to both health insurance policies initiated after January 1, 2007, and NHIF contributions, all of which qualify for tax relief. For employees, this relief is capped at Ksh255 per month, which is 15% of the Ksh1,700 NHIF contribution.
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“The current income tax relief does not extend to SHIF contributions under the Social Health Insurance Act,” KRA emphasized in the notice.
KRA also noted that the Treasury CS’s proposed relief only applied to NHIF deductions, which have now been replaced by the SHIF, which officially launched on October 1, 2024.
“The proposed relief refers to NHIF contributions under the National Health Insurance Fund Act, which was repealed by the Social Health Insurance Act,” KRA explained.
KRA did, however, acknowledge that the Tax Laws (Amendment) Bill, 2024, includes an amendment to allow SHIF contributions to be deducted from taxable income.
The new contributions mandate that all employers deduct a statutory 2.75% of an employee’s gross salary or wage for the SHIF by the 9th of each month.
For the purpose of the SHIF, a household’s gross salary or wage, derived from salaried employment, includes basic salary and any regular allowances paid.
As a result of this clarification, Kenyans who had hoped to benefit from higher take-home pay despite the deductions will need to adjust their expectations. Many have expressed dissatisfaction with the continuing economic strain, particularly as SHIF deductions further reduce their pay.
KRA Rules Out Tax Relief on SHIF Deductions
