The National Treasury has announced plans to review and lower Pay as You Earn (PAYE) deducted from employees’ salaries.
In the proposal contained in the Budget Policy Statement (BPS), CS Njuguna Ndung’u said the move will relieve the low-income earners amid the hard economic impact and stagnant wages.
The CS explained that the low earners have nothing to save or invest and are the most affected by the current PAYE structure.
“The current structure is not progressive since tax bands are not wide enough to cushion low-income earners. Further, the structure increases opportunities for tax avoidance and evasion,” Prof Ndung’u said in the 2024 Budget Policy Statement.
In 2020, the government exempted Kenyans earning less than Ksh 24,000 from taxation to cushion them from the effects of the Covid-19 pandemic.
However, according to the Kenya Revenue Authority (KRA), workers in this category should pay 10% PAYE.
Proposed Changes on PAYE
In the proposed changes, workers earning less than Ksh 30,000 will be exempted from PAYE deductions.
Those earning Ksh 30,000 will be deducted Ksh 1,230 while workers earning Ksh 50,000 will part with Ksh 7,059.
Additionally, individuals earning Ksh 100,000 will pay Ksh 22,059, a monthly salary of Ksh 500,000 will be taxed Ksh 142,059 while those earning Ksh 1 million will be subjected to a Ksh 311,005 as PAYE.
This will be a slight reduction from the current deduction rates where a salary of between Ksh 24,001 and Ksh 32,333 pay 25% while a monthly income between Ksh 32,334 and Ksh 500,000 attracts a PAYE of 30%.
Further, individuals earning between Ksh 500,000 and Ksh 800,000 are charged 32.5% while those earning above Ksh 800,000 pay 35%.
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Govt Proposed Changes on Income Taxes
In the BPS, Prof Ndung’u also detailed the strategy for boosting revenue collection which focuses on all the tax heads, income tax, VAT, excise duty and customs duty.
The Strategy also outlines administrative measures aimed at improving the tax system.
According to the Budget Policy Statement 2024, some of the strategic interventions for income Tax are as follows.
- Reduce the corporate rate of income tax from the current 30 percent to 25 percent over the Strategy period.
- Gradually phase out the preferential corporate tax rates.
- Review residential rental income tax regime.
- Re-introduce minimum tax.
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- Introduce withholding tax on payments for goods supplied to the government, similar to services, as an advance tax.
- Rationalize and review tax exemptions for corporate entities to expand the tax base.
- Review the personal income tax band structure to improve progressivity.
- Rationalize and review tax exemptions and reliefs on individuals’ income to expand the tax base.
The proposed changes to the PAYE structure could be implemented in July 2024 depending on a study that will be conducted by KRA.
