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Shock awaits employed persons As KRA Readies For New Taxes.

Shock awaits employed persons As KRA Readies For New Taxes.

 

 

Shock awaits employed persons across the country should the Court of Appeal lift the conservatory orders barring implementation of the Finance Act 2023 in its judgment expected on Friday, July 28, 2023.

The Court of Appeal is expected to issue its judgment in the petition filed by Treasury Cabinet Secretary Njuguna Ndung’u, through Attorney-General, Justin Muturi, citing challenges in executing government expenditure due to the stalled implementation of new taxes seeking to raise an additional Sh211 billion in the current financial year.

Lifting the conservatory orders would mean provisions with a July 1 effective date such as the introduction of a housing tax of 1.5 per cent of gross pay matched by the employer would now be implemented and applied retrospectively.

Another provision that would hit Kenyan workers would be the introduction of the 32.5 per cent tax rate for persons earning between Sh500,000 and Sh800,000 monthly and 35 per cent rate for persons earning more than Sh800,000 monthly.

Retrospective application

Retrospective application means even though the July payroll would have already been processed by the time such orders are lifted, the taxman will be entitled to collect the July shortfall in the August payroll.

The Nation has learned that the Kenya Revenue Authority (KRA) has instructed its officials to have systems ready to effect the changes should the conservatory orders be lifted.

“The Finance Bill 2023 was assented into law on June 26. As you may be aware, the High Court issued orders on June 30th, 2023 suspending the implementation of the Finance Act 2023. Until such orders are lifted or varied, we may not legally implement the contents of this Act. Subject to the directions of the courts, the ICT division should work closely with the revenue departments to ensure that the system is ready to support the implementation of the Act”, an internal memo circulated within KRA reads.

Should the conservatory orders be lifted, persons with a gross salary of Sh600,000 per month will have their take home pay reduce by Sh11,473 to Sh413,943. This would be due to the new tax rate of 32.5 per cent as well as the 1.5 per cent housing tax.

Kenyans who earn Sh800,000 per month will see their take home pay reduce from Sh565,416 to Sh548,988 once the housing tax and the 35 per cent tax rate is factored in.

“All officers are advised to read this circular and the specific provisions of Finance Act 2023. Further, officers are advised that the provisions of the Act shall come into effect on the dates specified in Section 1 of the Act. The Act provides the following effective dates July 1, 2023; September 1, 2023; and January 1, 2024”, the KRA memo further states.

The Federation of Kenya Employers (FKE) said that employers are processing their July payrolls based on the provisions of the Finance Act 2022 pending guidance from the courts.

“The conservatory orders mean that nothing changes for now. We manage payrolls and calculate statutory deductions as we have always done until and unless the courts rule otherwise”, FKE Executive Director Jacqueline Mugo said.

Conservatory orders

The High Court issued conservatory orders barring implementation of the Finance Act 2023 on June 30. The case was later transmitted to the Chief Justice for the constitution of a bench to hear the petition filed against the Kenya Kwanza government’s debut revenue-raising plan.

Chief Justice Martha Koome, has since constituted a bench comprising justices David Majanja, Lawrence Mogambi and Christine Meoli to hear the petition.

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