New Backdated Tax Penalty Unveiled
Employers who do not pay the Affordable Housing Levy (AHL) on time will face a 2% fine, as mandated by the government. This penalty comes into effect after the Court of Appeal removed restrictions that were previously placed on enforcing the Finance Act 2023, including the retroactive application of the AHL.
In a notice released on Friday, August 4th, the Kenya Revenue Authority (KRA) clarified that it is the responsibility of employers to submit the Housing Levy deduction of 1.5 percent by the ninth day of each month.
Employers will ensure their 1.5 percent contributions are made during the same timeframe, resulting in a combined remittance of 3 percent.
Consequently, the Kenya Revenue Authority (KRA) requires employers to submit deductions for July and August 2023 by September 9th. Failure to do so may result in a two percent penalty on the outstanding amount.
“An employer who fails to comply with the law shall be liable to payment of a penalty equivalent to two percent of the unpaid funds for every month if the same remains unpaid,” read the notice in part.
For example, if an employer were to submit a total of Ksh200,000 for the monthly contributions and subsequently fail to do so, they would incur a penalty of Ksh4,000.
The government will receive monthly AHL deductions via KRA agent banks or mobile money.
It was further explained that every employer must report the AHL (Annual House Rent) in the PAYE return on iTax under sheet “M” and generate a payment slip associated with the tax head “agency revenue.”
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KRA issued its statement one day after the Ministry of Lands and Housing retroactively applied the Housing Fund, which was established in the Finance Act 2023.
Consequently, employees will experience a deduction exceeding their regular August salaries. For example, under normal circumstances, a Kenyan earning Ksh20,000 would pay Ksh300. Nevertheless, with the inclusion of backdating, Ksh600 will be subtracted from their August pay.
After the implementation of other provisions in the Finance Act, employees will encounter additional deductions, including higher PAYE (Pay As You Earn) for those with incomes exceeding Ksh500,000. These deductions will be applied retroactively.
Under the updated guideline, individuals with an income ranging from Ksh500,000 to Ksh800,000 will be subject to a 32.5 percent PAYE deduction from their salary.
Those receiving over Ksh800,000 in salaries will pay 35 percent.
Nevertheless, on Friday, August 4, the Law Society of Kenya (LSK) appealed to the Court of Appeal in an attempt to prevent the government from implementing the new tax collection as stated in the Finance Act of 2023.
LSK contended that the recently imposed taxes were in violation of the constitution and were implemented during a time when Kenyans were already facing the burden of a soaring cost of living.
New Backdated Tax Penalty Unveiled
