How The New Tax Bands Will Affect Payslips.
Kenya’s top earners who rake in between Sh800,000 and Sh1 million per month in salaries will see their tax obligations rise by between Sh7,500 and Sh17,500 per month once new top tax bands proposed by the National Treasury come into effect with the passing of the Finance Bill 2023.
Less than one percent of employees earn top dollar in the economy however, meaning that the government’s take from these enhanced tax bands will be limited in terms of the overall expected inflow of Sh1.19 trillion from income taxes in the upcoming fiscal year.
Treasury CS Njuguna Ndung’u on Thursday announced the new tax bands imposing a 32.5 percent PAYE [Pay-as-You-Earn] rate on income falling between Sh500,000 and Sh800,000, and 35 percent for all pay above this threshold in his Budget Speech, aligning with the recommendations made by Parliament’s Budget and Finance Committee in its report on the Bill.
The existing tax bands impose a top tax rate of 30 percent on all pay above Sh32,333 per month, which affects 20 percent of all workers, with earnings that fall between Sh24,000 and Sh32,333 levied 25 percent, working out to Sh2,083 per month.
The bottom tier of the tax scale (Sh24,000 and below) is levied a rate of 10 percent, but is effectively not taxed (42.5 percent of workers) because the government offers a relief or refund equivalent to the Sh2,400 that is charged on this amount.
“The tax structure is regressive as an individual employee earning incomes above Sh32,333 per month falls within the upper tax band at the rate of 30 percent leaving no significant gap between employees who do not pay tax as a result of tax relief and those earning higher incomes,” said Prof Ndung’u.
“We shall continue to review that PAYE structure to make it more progressive,” he added.
For Kenyans earning Sh800,000 per month, their new top band of 32.5 percent will see them pay Sh242,283 in total PAYE before relief, up from Sh234,783 previously.
For those earning Sh1 million, the tax obligation rises to Sh312,283, up from Sh294,783, due to the additional two PAYE bands on their pay.