KRA New PAYE Rates Effective January 2017 in Kenya
Kenya Revenue Authority (KRA) has implemented new Pay as You Earn (PAYE) rates in 2017. This comes months after the Finance Act 2016 was signed into law by the president. This act revised the tax rates and increased personal relief from Ksh. 13,944 per year to Ksh. 15,360 per year. The new rates took effect in January 2017.
In the new structure, KRA had widened the tax bands. This is a change from the Kenyan income tax brackets in 2016 and earlier.
Below are the new PAYE rates in Kenya effective January 2017:
On the first Ksh. 134,164 …………… ….10%
On the next Ksh.126, 403 ……………….15%
On the next Ksh.126, 403 ………………..20%
On the next Ksh. 126,403 ………………..25%
On all income over Ksh. 513, 373……….30%
If you want to know what this more, you can use a local PAYE calculator to understand the implications. Let me present you with an example of what the new rates mean using a calculator:
Example: If your gross salary is Ksh. 30,000 per month, the effective tax rate is 9.53%, your net pay will be Ksh. 25,
160.74, and PAYE will be Ksh. 2, 859.26. Now, let’s compare this with earlier rates for the same gross salary. Before the 2016 Finance Act was passed, for a person earning Ksh. 30,000 per month, the effective tax rate was 10.42% a net salary of Ksh. 24,893.42, a PAYE of Ksh. 3, 126.60. Big difference, huh? Not really. The new rates save this person Ksh. 267.32 per month which translates to Ksh. 3,210 per annum. The new personal relief of Ksh. 1,280 per month and 15,360 per annum applied effective January 2017. Before the implementation of the Finance Act 2016, the personal relief was Ksh. 1, 162.
How do the new rates affect employee income?
Well, while we have been made to believe that they will reduce the tax burden on taxpayers, the difference is negligible. Not worth all the hype that was created. This reminds me of when you hear that the government has released several hundreds of millions to pay civil servants only to realize that each civil servant will be getting Ksh. 307. The new method of calculation does not favor high-income earners either since while a person earning Ksh. 30,000 will save Ksh. 267.32, a person making Ksh. 500,000 saves only Ksh. 608.30. So just don’t get too excited yet since the only important change that has been made is the calculation method.
This is not the first time that KRA is making changes to its tax structure since it has revised various tax features over the years. In 2015, the National Hospital and Insurance Fund (NHIF) rates in Kenya were increased from the standard Ksh. 320 paid by most formal workers and this meant that employers and employees had to start making higher contributions. At present, the rates range from between Ksh. 150 and Ksh. 1,700. The National Social Security Fund (NSSF) rates have also been increased in previous years.