Kenya Revenue Authority (KRA) has backdated the salary deductions and tax collection effective dates to 1st July 2023. This follows the Court of Appeal order of 28th July 2023 suspending the High Court order of 10th July 2023 that had stopped implementation of the Finance Act No. 4 of 2023.
Some of the provisions affecting employment deductions that became effective from 1st July 2023 are:
- Housing levy at 1.5% of the Gross monthly salary matched by 1.5% by the employer. The levy has no maximum limit.
- PAYE at 32.5% and 35% for monthly incomes greater than Kshs. 500,000 and Kshs. 800,000 respectively.
Employers and employees concerns:
- Makeup of gross salary (note gross salary includes the value of all other benefits accruing or paid to the staff in relation to the employment);
- July 2023 salaries are eligible for deduction of the Housing Levy and new PAYE bands where applicable;
Way forward if you had paid July 2023 salaries before deducting Housing Levy:
- Compute PAYE and Housing Levy for July 2023 per Finance Act No. 4 of 2023;
- Remit the PAYE and levy on or before 9th August 2023;
- Communicate to employees that their July 2023 salaries were overpaid because Housing Levy or additional taxes had not been deducted;
- Communicate to staff that the overpayment will be recovered from their August 2023 salaries or other subsequent staff dues.
- Employer is expected to ensure that the total deductions two thirds of the employee’s pay.
Employers who are yet to pay their employees should subject the July 2023 salaries to the levy and remit the same.