The Kenyan Government has published the proposed draft Tax Laws (Amendment) Bill 20204 and the draft Tax Procedures (Amendment) Bill 2024. These Bills aim to reintroduce some of the tax measures originally contained in the Finance Bill 2024 that was withdrawn. Below is a summary of the key proposed changes affecting payroll:

1. Section 5(2)(b) of the Income Tax Act: Increases the exempt limit on non-cash benefits from KES 36,000 to KES 60,000 per annum.
2. Section 5(4)(f) of the Income Tax Act: Rewords and increases the non-taxable meals threshold from KES 48,000 to KES,60 000 per annum.
3. Section 5(4)(g) of the Income Tax Act: Increases the amount of non-taxable gratuity and similar payments from KES 240,000 to KES 360,000 per annum.
4. Section 15 of the Income Tax Act: Introduces tax deductions for contributions to:
   1. the Affordable Housing Levy,
   2. Post-Retirement Medical Fund, Relief limited to KES 15,000 per month, and;
   3. the Social Health Insurance Fund.
5. Section 15(3)(b) of the Income Tax Act: Increases the tax deduction limit on mortgage interest from KES 300,000 to KES 360,000 per annum.
6. Section 22A & B of the Income Tax Act: Increases the amount the tax deduction limit in respect of contributions to registered pension or provident funds, registered individual retirement funds and public pension schemes from KES 240,000 to KES 360,000 per annum. Additionally, it raises the exempt portion of employer contributions to retirement funds paid by a non-taxable employer to a registered fund from KES 20,000 to KES 30,000 per month.
7. Part 1 of the First Schedule to the Income Tax Act: Expands the list of exempt income to include income received from pension payments, gratuity and other payments from a registered pension fund, registered provident fund, public pension scheme or the National Social Security Fund, subject to rules and conditions.

Additionally, the Government has published several draft legal notices which contain proposed tax measures. Here are the key measures affecting payroll:

1. Section 5(4)(b): introduces a prescribed exempt limit on Medical Benefits of KES 1,000,000 per annum.
2. Introduction of the Income Tax Act (Pay as You Earn) Rules, 2024, the Income Tax (Retirement Benefit) Rules, 2024 and the Income Tax (Withholding Tax) Rules) 2024.

We will continue to monitor these developments and keep you updated.