Unpacking the new PAYE tax rates

BLOG 08/02/2021

The Tax Laws Amendment Act, 2020 dated 25th April 2020 introduced a raft of fiscal measures, aimed at cushioning Kenyans against the harsh economic effects of the Covid -19 Pandemic.

Amongst these measures were the reduction of Personal Income Tax top rate from 30% to 25%, tax exemptions on incomes below KShs. 24,000 per month and an increase in monthly personal relief from KShs. 1,408 to KShs. 2,400 monthly or KShs. 16,896 to KShs. 28,800 per annum respectively.

The following PAYE tax bands took effect on 1st April 2020 for taxation of employment income earned between April and December 2020:

PAYE Tax Bands                                                                         Rate of Tax

On the First    Ksh 24,000 (288,000 p.a)                                                  10%

On the next     Ksh 16,667 (200,000 p.a)                                                 15%

On the next     Ksh 16,667(200,000 p.a)                                                  20%

On all income amounts in excess of Ksh 57,334 (688,000 p.a)                    25%

Based on the above tax bands, an individual who earned a taxable salary of KShs. 100,000 in December 2020; the total PAYE deducted for the month was Ksh. 16,499.95.  The same salary Kshs. 100,000.00 would have attracted PAYE of Kshs. 22,656.26 were it not for the reliefs introduced in April 2020.

The Individual Income Tax rates were further revised through the Tax Laws (Amendment) (No.2) Act of 23rd December 2020.

The major amendment under this law was the repeal of the 15% and 20% tax bands, leaving only 3 bands. Nevertheless, the wider 10% band and monthly personal relief of Kshs. 2,400 effected in April 2020 were retained. Additionally, employees earning less than KShs. 24,000 monthly are still exempt from paying tax. The due date for filing PAYE returns and making payments remains on or before the 9th day following the end of each month.  The first PAYE return and payment under the new PAYE rates is due by 9th February 2021.

The following tax rates therefore apply to individual incomes effective 1st January 2021;

PAYE Tax Bands                                                                                      Rate of Tax

On the First Ksh 24,000 per month (288,000 p.a)                                            10%

On the next Ksh 8,333 per month (100,000 p.a)                                              25%

On all income amounts in excess of Ksh 32,333 per month (388,000 p.a)           30%

Using the same example of an individual earning Kshs. 100,000 per month, the PAYE under the revised tax rates amounts to Kshs.  22,383.35

The revised measures are aimed at increasing revenue to support the government programs and enhance economic growth.

 

Cynthiah Kerubo Oigara

Tax Education Officer

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