This month’s payslips
Salaried employees will begin receiving lesspay this month as a result of the Court of Appeal’s decision to allow the execution of the Finance Act, which would allow the government to backdate any taxes imposed to July 1, 2023.
On Friday, July 28, the Court of Appeal liftedthe conservatory orders preventing the Act’s execution, allowing the Kenya Revenue Authority (KRA) to collect the new taxes in order to meet its aim of raising an additional Ksh211 billion in the fiscal year 2023/2024.
This means that the new taxes, including the mandatory housing levy and Pay As You Earn (PAYE) for high income earners, will go into force by the end of August.
The Act also includes an Export and Investment Promotion Levy, a 16% Value Added Tax (VAT) on petroleum goods, and a turnover tax.
PAYSLIP MODEL
Gross pay is Ksh20,000.
Housing Tax = Ksh600
Insurance Assistance=Ksh112.50
Net Income=Ksh17,570
NHIF=Ksh750
NSSF=Ksh1,080
PAYE=Ksh0
Personal Solace=Ksh0
Tax Prior to Relief=Ksh0
Taxable Earnings=Ksh18,920
What does “backdate taxes” mean?
In order to backdate taxes, the IRS will use retrospective application, which implies that the July deficit will be collected in the August payroll.
All Kenyan employees are required to contribute 1.5 percent of their gross monthly wage to the government’s Affordable Housing initiative under the Housing Levy.Employers, on the other hand, match and remit contributions.
Employees who have already received their monthly wage for July 2023 will be required to make Housing levy contributions for both months (3% of their gross monthly salary) and 1.5 % in following months.
For example, an employee earning Ksh50,000 per month will contribute Ksh1,500 at the end of August, and Ksh750 in subsequent months.
What much will be deducted from the pay stubs?
Aside from the 1.5% Housing Levy, another tax provision due to take effect is the extended PAYE, which introduced two new rates: 35% PAYE for those earning more than Ksh800,000 monthly and 32.5 percent for those earning between Ksh500,000 and Ksh800,000.
For example, an employee earning a gross salary of Ksh600,000 will have Ksh11,473 removed from his or her pay due of the 32.5 percent tax rate and the 1.5 percent housing charge. How will the KRA carry it out?
Following the Act’s adoption, the Ministry of Lands designated the Kenya Revenue Authority (KRA) as the collecting agent. The taxman will now aim to raise an additional Ksh211 billion in the fiscal year 2023/2024.
According to an internal memo sent to its employees, the KRA modified the iTax interface to reflect the new tax rates.
According to reports, the taxman asked its personnel to keep the systems ready in case the conservatory orders were overturned. “PAYE has been updated to reflect the new bands imposed by the Finance Act 2023.” These modifications will be reflected on the consolidated payroll return beginning July 1, 2023. “Please advise taxpayers to download the most recent P10 return from their profiles; the updated return has also been updated on the website,” stated part of an internal KRA memo.
Busia Senator Okiya Omtatah moved to court seeking to block the Act from being implemented. The senator argued that the mandatory salary deductions to support President Ruto’s Affordable Housing agenda violated Kenyans’ rights.
Following his petition, the High Court issued conservatory orders against the implementation of the Act, arguing that Kenyans would be unfairly subjected to taxes.
The State, led by Treasury Cabinet Secretary Njuguna Ndung’u and the Attorney General’s office, however, moved to the appellate court seeking to lift the orders, arguing that the situation brought crisis to the government in relation to the government’s efforts to raise revenue. The Court of Appeal ruled in the State’s favour.
Senator Okiya Omtatah of Busia filed a legal challenge to the Act’s implementation. The senator claimed that forced wage deductions to fund President Ruto’s Affordable Housing agenda were a violation of Kenyans’ rights.
Following his suit, the High Court imposed conservatory injunction against the Act’s execution, claiming that Kenyans would be unfairly taxed.
The State, lead by Treasury Cabinet Secretary Njuguna Ndung’u and the Attorney General’s office, filed an appeal with the appellate court, stating that the situation had caused a crisis in the government’s efforts to gather money. The Court of Appeal found in favor of the State.
The petition will now be heard by a three-judge panel comprised of Justices David Majanja, Lawrence Mogambi, and Christine Meoli.
