From next month, the Treasury deducts extra from teachers’ pay
If a Treasury proposal to eliminate tax breaks on pay-as-you-earn (PAYE) taxes is accepted, teachers and other salaried employees’ incomes could be reduced.
Educators and other workers already receive Sh2,400 in personal tax relief, which is normally reflected on their monthly pay statements. The Treasury’s newly revealed medium-term revenue strategy seeks to enhance revenue collection by reassessing existing tax reductions on employment earnings.
The Treasury contends that, while tax breaks might affect taxpayer behavior, they come at a cost in terms of lost tax revenue and complicate the tax system. According to research, these incentives may not always be efficient at influencing behavior.
Salary workers currently benefit from two types of PAYE tax reliefs, including the Sh2,400 monthly personal relief for resident individuals, both of which are intended to lower the tax burden.
Furthermore, salaried workers who pay insurance premiums for life, health, or education policies for themselves, spouses, or children are eligible for a 15% tax break, up to a maximum of Sh60,000 per year. To qualify, these policies must have a maturity duration of at least ten years.
Contributions to the National Hospital Insurance Fund (NHIF) become eligible for insurance relief beginning last year.
The Treasury’s proposal to eliminate one or more of these tax breaks has alarmed tax specialists. They believe it will have an additional impact on the disposable income of households that are already adjusting to the recently implemented housing charge and greater National Social Security Fund deductions.
To address this, the Treasury has proposed mitigating measures such as implementing a new zero-percentage-point PAYE tax band for low-income taxpayers.
Simultaneously, with the establishment of new tax bands in the 2023 Finance Act, the government is considering lowering the maximum PAYE tax rate from 35% to 25% in order to combat tax avoidance and evasion.
These reforms might have a considerable impact on various income groups, with the majority of Kenyan employees earning less than Sh100,000 per month and some not paying PAYE taxes at all due to current personal relief.