Rotich hands workers income tax cut boost
5 months ago, 2 Jan 08:20
Kenyan workers are set to benefit from a slight reduction in their payroll taxes beginning this month when the pay-as-you-earn (PAYE) bands will be expanded by a further 10 per cent as promised in last year’s budget. The income tax reforms that Treasury secretary Henry Rotich announced in his March 2017 budget speech will also increase taxpayers’ monthly personal relief (MPR) from Sh1,280 to Sh1,408. The changes in PAYE bands and personal relief will yield monthly tax savings ranging from Sh184 to Sh667.5 depending on one’s salary. This will be the second year running that the government has tweaked the tax bands, building on a similar 10 per cent expansion of the MPR and tax categories in January last year that resulted in savings of between Sh181 and Sh609 per month. Bridge inequality The impending changes will raise the effective tax-free income threshold from Sh12,260 to Sh13,486, largely benefitting those at the bottom of the income pyramid such as security guards, waiters, messengers and cooks. Mr Rotich said in his budget speech that the reforms are intended to benefit low-income earners while simultaneously reducing income inequality. The tax savings, which amount to about one per cent for most employees, will however be eroded by inflation which has averaged 8.1 per cent in the past 12 months. The changes will benefit high-income earners the most in absolute terms, with those paid a gross salary of Sh50,000 and above set to record monthly savings of Sh667.5. Employees with lower salaries will get smaller tax cuts starting, for instance, at Sh184 per month for those earning Sh20,000 whose tax will fall to Sh977 from Sh1,161 after the relief is deducted. While low-income earners have gained less from the changes in the PAYE taxes, they continue to be the exclusive beneficiaries of tax exemption on their bonuses, retirement and overtime pay that took effect in January last year. The exemption only applied to workers whose taxable employment income before bonus and overtime allowances do not exceed the lowest tax band previously set at Sh134,164 annually or Sh11,180 per month. The taxable floor will rise to Sh147,580 per year or Sh12,298 monthly this year. The first band is taxed at a rate of 10 per cent, with the taxes rising in a series of taxable income bands that terminates at the maximum of 30 per cent on the highest band, which currently starts from Sh42,781. The highest band will be hoisted to start at Sh47,059, contributing to the tax savings for those with relatively higher salaries. While the bands were increased, the rates applicable were not changed. Cushion workers Mr Rotich said the PAYE reforms are meant to cushion workers from the high cost of living and to share the benefits of economic growth more broadly. The maximum tax cut of Sh667.5 just about covers the electricity bill of a household consuming a modest 50 kilowatt hours (kWh) per month, based on the November 2017 power bills. It is also enough to cover a single ...
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