KRA Clarifies Applicability of Insurance Relief Made to SHIF

The clarification comes after employees began paying into SHIF last month.

The Kenya Revenue Authority (KRA) has issued a clarification on the applicability of insurance relief to contributions made to Social Health Insurance Fund (SHIF).

KRA Commissioner for Domestic Taxes in a statement on Friday, November 8 issued the clarification following the implementation of the Social Health Insurance Act.

The authority said that insurance relief does not apply to contributions made to the SHIF under the Social Health Insurance Act.

According to KRA, the Income Tax Act provides for insurance relief for a health policy whose term commences on or after January 1, 2007, or a contribution made to the defunct National Health Insurance Fund (NHIF).

“The relief as provided refers to the NHIF under the National Health Insurance Fund Act, which was repealed by the Social Health Insurance Act. The relief as currently provided under the Income Tax Act does not apply to contributions made to the SHIF under the Social Health Insurance Act,” the statement reads in part.

KRA Clarifies Applicability of Insurance Relief Made to SHIF — Kenyans receiving services at the Kenya Revenue Authority headquarters. PHOTO/KRA

KRA clarification after shift to SHIF contributions

In addition, KRA said the Tax Laws (Amendment) Bill, 2024 has proposed an amendment to the law to provide for a deduction of the SHIF contributions against taxable income.

The clarification comes after employees began paying into SHIF last month.

The revised SHIF rates require employees earning between Ksh100,000 and Ksh1 million to contribute between Ksh1,050 and Ksh25,800, making it the largest payroll deduction after income tax.

Also Read: New SHIF Tariffs: Breakdown of Amount Available for Each Health Package (LIST)

Kenyan employers starting with the October 2024 payroll now deduct 2.75% from each employee’s gross salary as their SHIF contribution.

These deductions are then remitted to the Social Health Authority (SHA), replacing NHIF contributions.

Since switching to the SHIF, employees face new monthly deductions, with those earning Ksh450,000, Ksh800,000, and Ksh1 million paying Ksh10,675, Ksh20,300, and Ksh25,800, respectively.

Workers earning Ksh100,000 face additional costs of Ksh1,050, while those on Ksh200,000 face deductions of Ksh3,800.

However, the National Treasury has since proposed that SHIF and Housing Levy deductions be made from workers’ gross salaries before taxation, in an aim to increase take-home pay for thousands of employees.

Proposal for tax relief for SHIF and affordable housing

The change, included in the proposed Tax Laws (Amendment) Bill, 2024, would replace the current system, which gives a tax relief of 15 per cent on these contributions.

Also Read: Unpacking Formula Govt Will Use to Determine What Unemployed Kenyans Will Pay to SHA

The proposed amendment would further end the 15 per cent tax relief applied to the housing levy since March and to the now-defunct NHIF since 2021.

Instead, by deducting these levies from gross pay before income tax, employees would see an overall reduction in their tax burden.

The proposal seeks to address concerns that heavy payroll deductions have left some workers with less than a third of their pay after taxes, potentially offering greater relief.

“The Bill proposes to amend the Income Tax Act to provide that the following amounts shall be allowable deductions in the computation of taxable income of individuals: contributions to the Social Health Insurance Fund (SHIF), the amount deducted in accordance with affordable housing, and contributions to a post-retirement medical fund up to Ksh15,000,” the Treasury said in a preview of the proposed Bill which is expected to be tabled in Parliament soon.

“These amendments will boost disposable income and enhance employees’ take-home pay,” asserts Treasury.

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