This Is What Ruto Now Wants To Take From Teachers Payslips
Teachers and other salaried employees face potential income reductions if a proposal from the Treasury to eliminate tax reliefs on pay-as-you-earn (PAYE) taxes is adopted. Currently, these individuals benefit from a personal tax relief of Sh2,400, typically indicated on their monthly payslips.
However, the Treasury, in its newly published medium-term revenue strategy, plans to reassess these tax reliefs on employment earnings to enhance tax collections.
The Treasury’s rationale for this move is that while tax incentives can influence taxpayer behavior, they also result in forgone tax revenue, complicate the tax system, and reduce its equity-promoting effectiveness. Studies suggest that these incentives may not necessarily change taxpayer behavior significantly.
Presently, salaried workers enjoy two types of tax reliefs on PAYE. The first is a Sh2,400 monthly personal relief for all resident individuals, designed to reduce the tax burden. Additionally, those who pay insurance premiums for life, health, or education policies for themselves, spouses, or children can claim a 15 percent relief, capped at Sh60,000 annually, provided the policies have a maturity period of at least 10 years. Contributions to the National Hospital Insurance Fund (NHIF) also became eligible for insurance relief in January of the previous year.
The Treasury’s proposal to eliminate these tax reliefs has raised concerns among tax experts, who fear it may further impact the disposable income of households already grappling with the recently introduced housing levy and higher National Social Security Fund deductions.
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To mitigate the removal of personal relief, the National Treasury plans to introduce a new PAYE tax band at zero percent, which would benefit low-income tax earners. Simultaneously, the government is considering reducing the top PAYE tax rate from 35 percent to 25 percent for top earners as part of a broader effort to eliminate tax avoidance and evasion opportunities.
This development follows the introduction of new tax bands at 32.5 percent and 35 percent for monthly employment income above Sh500,000 and Sh800,000, respectively, in the 2023 Finance Act. However, experts doubt these changes will generate significantly higher revenues for the exchequer, given that the majority of employees in Kenya earn less than Sh100,000 per month.
Currently, workers earning up to Sh24,000 per month are exempt from PAYE taxes due to the Sh2,400 personal relief, which matches the 10 percent rate of tax on the lowest tax band. The remaining salaried workers incur PAYE taxes at rates of 25 and 30 percent, respectively.
This Is What Ruto Now Wants To Take From Teachers Payslips
