On 11 December 2024, President William Ruto signed seven bills into law, including the Tax Laws (Amendment) Act 2024. This Act introduces several legislative changes impacting payroll. Below is a summary of the key details. The Act was gazetted on 13 December 2024, and its provisions will take effect on 27 December 2024.

Increase in the Non-Cash Benefits Exemption Limit
Current Law: Non-cash benefits not exceeding KSh 36,000 per annum / KSh 3,000 per month are exempt. When the total benefits exceed this limit, the full value becomes taxable.
New Law (Effective 27 December 2024): The aggregate of non-cash benefits not exceeding KSh 60,000 per annum / KSh 5,000 per month will be exempt. If the total benefits exceed KSh 5,000 per month, the full value will become taxable.
Source: Section 5(2)(b) of the Income Tax Act

Increase in the Non-Taxable Meals Threshold, Including Reworded Legislation
Current Law: The value of meals served to employees in a canteen or cafeteria operated or established by the employer or provided by a third party who is a registered taxpayer (whether the meals are supplied on the employer's premises or those of the third party) is exempt up to KSh 48,000 per year per employee (KSh 4,000 per month). If the benefit exceeds KSh 4,000 per month, the entire benefit becomes taxable.
New Law (Effective 27 December 2024): The first KSh 60,000 per annum / KSh 5,000 per month of the value of meals served to employees will be exempt, under the following reworded legislation: Meals may be supplied by the employer or not. Meals may be served on the employer's premises or through a canteen or cafeteria operated or established by the employer or provided by a third party who is a registered taxpayer. The exemption applies regardless of whether the meals are served on the employer's premises or those of the third party. If the value of the meals exceeds KSh 5,000 per month, the entire value will become taxable. Additional conditions may be specified by the Commissioner.
Source: Section 5(4)(f) of the Income Tax Act

Increase in the Non-Taxable Gratuity Threshold
Current Law: Gratuity or similar payments made by an employer in respect of employment or services rendered are exempt from tax if: The payment is deposited into a registered pension scheme. The exemption is limited to KSh 240,000 for each year of service. This exemption does not apply to individuals eligible for the retirement fund contribution tax deduction under Sections 22A and 22B of the Income Tax Act.
New Law (Effective 27 December 2024): The rules above remain unchanged, but the exemption threshold will increase: From KSh 240,000 per year of service To KSh 360,000 per year of service.
Source: Section 5(4)(g) of the Income Tax Act

Increase in Exemption for Employer Pension Contributions Paid by a Non-Taxable Employer to a Registered Fund
Current Law: Employer contributions to registered pension schemes, provident funds, or individual retirement funds are exempt from tax for the employee, provided the following rules are met: The employer is a non-taxable employer. The contributions are paid into a registered fund (as per the Retirement Benefits Authority). The exemption is limited to the lesser of: 30% of pensionable salary, KSh 20,000 per month (KSh 240,000 per annum), or The actual contribution made. Contributions exceeding this limit are treated as a taxable benefit for the employee.
New Law (Effective 27 December 2024): The exemption limit will increase: From KSh 20,000 per month (KSh 240,000 per annum) To KSh 30,000 per month (KSh 360,000 per annum). The rules regarding non-taxable employers, contributions to registered funds, and the taxation of excess contributions remain unchanged.
Source: Section 22A and 22B

Affordable Housing Levy Tax Deduction
Current Law: Contributions qualified for an affordable housing tax relief of 15%, capped at KSh 9,000 per month (KSh 108,000 per annum).
New Law (Effective 27 December 2024): The tax relief will be replaced with a tax deduction for the employee’s entire contribution amount, with no limits.
Source: New Section 15(2)(ac), repeal of Section 30A, and Paragraph 4 of Head A of the Third Schedule

Post-Retirement Medical Fund (PRMF) Tax Deduction
Current Law: A post-retirement medical fund tax relief of 15% of contributions paid, capped at KSh 60,000 per annum / KSh 5,000 per month, is available.
New Law (Effective 27 December 2024): This will be replaced with a tax deduction capped at KSh 15,000 per month, applicable to all employees, not limited to residents.
Source: New Section 15(2)(ad), repeal of Paragraph 4 of Head A of the Third Schedule

Social Health Insurance Fund (SHIF) Tax Deduction
Current Law: SHIF contributions are not tax-deductible or eligible for tax relief.
New Law (Effective 27 December 2024): A tax deduction will be introduced for all SHIF contributions, without limits, for both residents and non-residents.
Source: New Section 15(2)(ae)

Increase in Mortgage Interest Tax Deduction
Current Law: Interest paid on money borrowed for the purchase or improvement of residential property is deductible from an employee’s taxable monthly pay, subject to the following conditions: The deduction is capped at KSh 300,000 per annum (KSh 25,000 per month). The deduction is limited to one residence per person. If the individual occupies the property for only part of the year, the deduction is apportioned accordingly. The deduction applies only to money borrowed from specific institutions listed in the Fourth Schedule of the Income Tax Act. The deduction does not apply to secondary employees.
New Law (Effective 27 December 2024): The annual and monthly deduction limits will increase: From KSh 300,000 per annum (KSh 25,000 per month) To KSh 360,000 per annum (KSh 30,000 per month).
Source: Section 15(3)(b)

Increase in Registered Retirement Fund Tax Deduction
Current Law: Employees' contributions to registered pension or provident funds, registered individual retirement funds, and public pension schemes (including NSSF) are tax-deductible, subject to the following conditions: The deduction is limited to the lesser of: 30% of pensionable salary, KSh 20,000 per month (KSh 240,000 per annum), or The actual contribution made.
New Law (Effective 27 December 2024): The monthly and annual deduction limits will increase: From KSh 20,000 per month (KSh 240,000 per annum) To KSh 30,000 per month (KSh 360,000 per annum).
To clarify eligibility, the following definitions will be added to Section 2 of the Income Tax Act: Registered individual retirement fund: An individual retirement fund where the trust deed has been registered with the Retirement Benefits Authority. Registered pension fund: A pension fund registered with the Retirement Benefits Authority. Registered provident fund: A provident fund registered with the Retirement Benefits Authority.
Source: Section 22A and 22B, and Section 2

Other Changes
Removal of NHIF Relief
The tax relief for NHIF contributions will be repealed following its replacement with SHIF.
Source: Section 31

Exemption of Pension Payments
Current Law: Monthly pension payments granted to individuals aged 65 years or more are exempt from income tax.
New Law (Effective 27 December 2024): The exemption will apply to the following payments made from a registered fund (as defined by the Retirement Benefits Authority): Pension payments upon reaching the retirement age as determined by the rules of the fund or scheme. Payments of gratuity allowances paid under a public pension scheme. Payments of retirement annuities. Withdrawals from the fund before the retirement age due to ill health. Withdrawals from the fund after 20 years of membership, regardless of retirement age.
Source: Paragraph 35 of the First Schedule

Income Tax Exemption for Non-Resident Contractors and Employees on Fully Grant-Financed Projects
New Law (Effective 27 December 2024): Income earned by non-resident contractors, sub-contractors, consultants, or employees involved in projects financed entirely through a 100% grant will be exempt from income tax under the following conditions: The project must be implemented under an agreement between the Government and a development partner. The exemption applies only to income directly related to the project. Any other income earned by the non-resident individual or entity unrelated to the project remains subject to tax. The non-resident must maintain this status for the entire tenure of the agreement.
Source: Paragraph 71 of the First Schedule

Reporting Requirements
Further details on reporting requirements will be communicated once additional guidance is received from the Kenya Revenue Authority (KRA).