The Kenya Revenue Authority (KRA) has responded to queries and concerns surrounding the Affordable Housing Levy, following the introduction of the Tax Laws (Amendment) Bill 2024.
The Tax Laws (Amendment) Bill 2024 is among two Bills which proposes changes set to be introduced by the National Treasury and Economic Planning.
National Treasury Cabinet Secretary John Mbadi on October 31, 2024, published an explanatory note on changes proposed to be introduced by both the Tax Laws (Amendment) Bill and the Business Laws (Amendment) Bill 2024.
The government through the Tax Laws Amendment Bill seeks to reintroduce some of the provisions that were contained in the ill-fated Finance Bill 2024 which President William Ruto declined to assent in June.
This came following weeks of public uproar against the measures that the state proposed in the Finance Bill 2024.
Among the proposals of the Tax Laws Amendment Bill when determining the taxable income of an individual is to include the amount deducted by an employer in accordance with the Affordable Housing Act, 2024, in the case of an employee.
Tax Laws (Amendment) Bill 2024
Other contributions proposed to be included as allowable deductions when determining the taxable income include that made by a person to the Social Health Insurance Fund (SHIF) and post-retirement medical fund subject to a limit of fifteen thousand shillings per month.
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The proposal by the government was seen to be in response to concerns relating to the negative impact that contributions to both the SHIF and the Affordable Housing Levy have had on the net earnings of employees.
Concerns have been raised about how the proposal will allow such contributions to be deducted before arriving at the taxable income of an employee.
However, KRA in its statement addressed the concerns about whether contributions to the Affordable Housing Levy qualify as allowable tax deductions.
The Authority clarified that no further drafting changes are necessary, confirming that individuals contributing under Section 4(2)(b) of the Affordable Housing Act are already covered under Section 15(1) of the Income Tax Act.
Full statement by KRA on Affordable Housing Levy Contributions
“Affordable Housing Levy is charged either on the gross salary of an employee under Section 4(2)(a) or the gross income of a person under Section 4(2)(b) of the Affordable Housing Levy Act. The deduction provided for under Clause 7 of the Tax Laws (Amendment) Bill, 2024 is to allow for the deduction of the amount contributed by an employee, which was not provided for until now.
A contribution made by any other person is considered expenditure wholly and exclusively incurred in the production of income being taxed and is therefore deductible under Section 15(1), an existing provision.
The amendment under Section 7 of the Tax Laws (Amendment) Bill, 2024 is therefore appropriate, as contributions under Section 4(2)(a) and Section 4(2)(b) of the Affordable Housing Levy Act are deductible under different sections of the Income Tax Act.”
The proposals by KRA are set to lead to a reduction in the Pay as You Earn (PAYE) payable by employees and therefore ultimately lead to an increase in the net pay of employees. This was notably one of the proposals that was contained in the Finance Bill 2024.
On the other hand, the Tax Laws (Amendment) Bill, 2024 also proposes to adjust the taxation of employment benefits by increasing the limit of tax-free pension contributions that are exempt from tax from two hundred and forty thousand (Ksh240,000) per year to three hundred and sixty thousand (Ksh360,000) per year.
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