The Finance Act 2023 was signed into law on 26th June 2023. It brought several amendments to laws relating to various taxes and duties; However, the High Court temporarily suspended its implementation pending the hearing and determination of the petition(s) before it;

The Treasury Cabinet Secretary moved to the appellate court requesting the lifting of the conservatory orders; and The Court of Appeal in its ruling delivered on 28 July 2023 lifted the conservatory order thereby setting the stage for the implementation of these tax changes as contained in the Finance Act. We have highlighted below the changes, which will affect payroll processing for the month of July 2023 and its impact on employees earnings.

Expanded tax bands

  • Two additional tax bands have been introduced above the current upper tax rate of 30%;
  • Individuals earning monthly incomes between KES 500,000 and KES 800,000 will be taxed at 32.5%;
  • Employees earning incomes of more than KES 800,000 will be taxed at 35%;
  • The effect of this is that the take-home pay for employees whose taxable pay fall in between KES 500,000 to KES 800,000 will reduce.
Taxable Amount – AnnualTaxable Amount – MonthlyRate
On the first KES 288,000On the first KES 24,00010%
On the next KES 100,000On the next KES 8,33325%
On the next KES 5,612,000On the next KES 467,66730%
On the next KES 3,600,000On the next KES 300,00032.5%
On incomes above KES 9,600,000On incomes above KES 800,00035%

 

Affordable Housing Levy

  • Section 31B of the Employment Act has been amended requiring employers to deduct and remit a levy known as the Affordable Housing Levy at the rate of 1.5% of the employee’s gross monthly salary with employers contributing a similar amount;
  • This levy will be required to be remitted not later than 9 working days after the end of the month; and
  • Unpaid amounts will attract a penalty of 2% of the amount due for each month the payment remains unpaid

Mileage Reimbursements

  • Amounts paid to employees as mileage reimbursements at the standard mileage rate approved by AA Kenya will be a tax free benefit; and
  • Excess amounts over and above the AA Kenya approved rates will be taxed on the employees through the payroll.

Conclusion

With the lifting of the conservatory order, it is advisable that all employers are required to re-run the July 2023 payrolls and effect the above changes to avoid penalties and interests. The resulting overpayment to employees in the month July 2023 can be deducted in the August payroll or the employer can agree with the employees on how to recover the same. Should you require any clarity on the above, kindly contact our payroll service Team.