No Tax Relief for 4 Years: Why You Will Continue Paying the Same Amount of PAYE
If you were hoping for President William Ruto’s administration to reconsider changes to Pay As You Earn (PAYE) soon, you might need to adjust your expectations.
The National Treasury has dampened workers’ hopes for a quick review of PAYE deductions by suggesting a considerable delay in revisiting the tax structure.
Despite growing calls for a revision due to the heavy financial load on salaried workers, President William Ruto’s administration recommends reviews only once every five years. This implies that any adjustments might not take place until 2028, a year after the next general election.
The National Tax Policy, introduced on Thursday, May 30, and led by Treasury CS Prof Njuguna Ndugu, outlines the government’s approach to tax revisions. It endorses a five-year interval for reviewing PAYE, along with all income tax reliefs, including personal, mortgage, and insurance, as well as thresholds and tax bands to account for inflation.
Last year, the government undertook a review via the Finance Bill 2023, setting the PAYE rate at 32.5 percent for individuals earning between Ksh500,000 and Ksh800,000 per month. Those earning above Ksh800,000 face a 35 percent PAYE deduction, along with additional levies like a 1.5 percent housing tax and a 2.5 percent medical insurance tax for state employees.
These measures were criticized, even by Members of Parliament who approved the Bill.
The measures also faced sharp criticism from groups such as the Union of Kenya Civil Servants (UKCS), which advocates for lower taxes on salaried workers. Secretary General Tom Odege has publicly demanded the removal of the Housing Levy, condemning it as an undue burden on workers.
“We especially want the Housing Levy abolished because we see it as unnecessary. It’s detrimental to workers,” Odege stated in December.
ALSO READ:
- Watch and win: All you need to know about Live streaming on 1xBet
- How not to make a mistake when choosing the best bookmaker in Kenya
- Understanding Gatwiri’s Cause of Death: Unraveling Positional Asphyxiation
- KRA Rules Out Tax Relief on SHIF Deductions
- Understanding Why Married Women Cheat: Common Reasons Behind Infidelity
In last year’s draft National Tax Policy (NTP), the National Assembly’s Finance Committee acknowledged the necessity for a review of punitive taxes, including the 35 percent PAYE, which disproportionately impacts individuals amid rising inflation. The committee recognized the need for a review to alleviate the heavy tax burden on individuals as inflation continues to erode their incomes.
The committee also pointed out disparities between individual and corporate tax rates, with individuals facing higher rates despite not having the same deductions as corporations.
Additionally, the Finance Committee suggested a progressive tax band structure to ensure that marginal rates do not exceed the corporate income tax rate, currently set at 30 percent. It stressed the need for equitable taxation, especially given the different deductions available to individuals and corporations.
Among the Treasury’s proposals are plans to adopt the exempt-exempt-exempt (EEE) method of taxation for retirement benefits. This approach involves deducting contributions to retirement schemes up to a certain threshold, exempting investment income within these schemes from taxation, and ultimately exempting pension payments from taxation.
The proposals include insights from public participation and come as the government seeks to address the declining tax-to-GDP ratio.
No Tax Relief for 4 Years: Why You Will Continue Paying the Same Amount of PAYE
