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Treasury Raids Teachers’ Payslips Again; Deductions Next Month

Treasury Raids Teachers’ Payslips Again; Deductions Next Month

If a Treasury proposal to end tax breaks on pay-as-you-earn (PAYE) taxes is accepted, teachers and other salaried workers may see their incomes decrease.

The Sh2,400 personal tax reduction that educators and other employees presently receive is frequently noted on their monthly pay statements. In order to increase revenue collection, the Treasury’s recently unveiled medium-term revenue strategy wants to reevaluate current tax relief on employment earnings.

Tax incentives, according to the Treasury, can affect taxpayer behavior, but they also cost money in lost tax income and complicate the tax code. According to studies, these incentives might not always be successful in changing behavior.

The Sh2,400 monthly personal relief for residents is one of two types of PAYE tax reliefs now available to salaried employees. These reliefs are intended to lessen the tax burden.

Paid insurance premiums for life, health, or education policies for an individual, their spouse, or their children may also be paid for with a 15 percent tax break, up to a maximum of Sh60,000 per year, for salaried employees. The maturity period for these policies must be at least ten years.

Contributions to the National Hospital Insurance Fund (NHIF) become qualified for insurance reduction beginning last year.

Tax specialists are concerned about the Treasury’s intention to eliminate some or all of these tax reliefs. They think it would have an even greater effect on households’ disposable income as they adjust to the newly implemented housing charge and higher National Social Security Fund deductions.

The Treasury has proposed mitigating measures to address this, such as creating a new PAYE tax band with a zero percent rate for low-income taxpayers.

In order to combat tax avoidance and evasion, the government is simultaneously thinking of cutting the maximum PAYE tax rate from 35 to 25 percent. This is in response to the introduction of new tax bands in the 2023 Finance Act.

Given that the majority of employees in Kenya make less than Sh100,000 per month and that some do not pay PAYE taxes at all because of the current personal relief, these changes could have a substantial impact on different income categories.

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