The Finance Bill, 2024 was published and gazetted on the 9th of May 2024.
Below is a summary of the key proposed amendments which will affect payroll, with a proposed effective date of 1 July 2024.
· The exempt amount of subsistence, travelling, entertainment or other allowance in respect of a period spent outside their usual place of work while on official duties will be amended from KSh 2,000 per day, to an amount of 5% of gross monthly earnings, with a new provision that the employer has a policy on the payment and accounting for these expenses (section 5(2)(a)(iii)).
· Currently, miscellaneous fringe benefits are only deemed taxable when on aggregate they exceed KSh 36,000 per annum (KSh 3,000 per month), this value is proposed to increase to KSh 48,000 per annum (KSh 4,000 per month) – section 5(2)(b).
· The exempt value of a meals benefit served 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 in the premises of the employer or the premises of the third party) will increase from KSh 48,000 per annum (KSh 4,000 per month), to KSh 60,000 per annum (KSh 5,000 per month) – section 5(4)(f).
· Any amount paid or granted to a public officer to reimburse an expenditure incurred for the purpose of performing official duties, notwithstanding the ownership of control of any assets purchased, will be exempt (section 5(4)(fa)).
· The exempt amount paid by the employer as a gratuity or similar payment in respect of employment or services rendered, which is paid into a registered scheme will increase from KSh 240,000 per annum to KSh 360,000 per annum, subject to further rules and conditions (section 5(4)(g)(a)).
· Employee contributions made to the Social Health Insurance Fund will be allowed as tax deduction (section 15(2)(ac)).
· Employee contributions made to the Affordable Housing Levy will be allowed as a tax deduction and will not be a tax relief as initially intended (section 15(2)(ad)).
· Employee contributions made to a post-retirement medical fund will be allowed as a tax deduction limited to KSh 10,000 per month and will no longer be a tax relief (section 15(2)(ae)).
· The tax deduction amount of interest paid on money borrowed from a specified financial institution for the purchase or improvement of residential property will be increased from KSh 300,000 per annum (Ksh 25,000 per month) to KSh 360,000 per annum (Ksh 30,000 per month), subject to rules and conditions (section 15(3(b)).
· Currently, contributions made to registered retirement funds (including NSSF) are allowed as a tax deduction up to KSh 240,000 per annum (KSh 20,000 per month), this value is proposed to increase to KSh 360,000 per annum (KSh 30,000 per month) – section 22A.
· An Insurance tax relief will no longer be allowed for a health policy whose term commences after 1 January 2007 or a contribution made to the National Hospital Insurance Fund (section 31(1)(v)).
· Section 34 will be amended to clarify that tax chargeable on any income specified in the Income Tax Act will be a rate specified in the Third Schedule, subject to exclusions.
· Currently Paragraph 53 of the First Schedule states that monthly pensions granted to a person who is 65 years of age or more will be exempt. This will be amended to clarify that a payment of pension benefits from a registered pension fund, provident fund, registered individual retirement fund or NSSF, upon attainment of the retirement age determined in accordance with the rules of the fund will be exempt, provided that the exemption shall also apply to a person who retires prior to attaining the retirement age due to ill health, or withdraws from the fund after the 20 years from the date of registration as a member of the fund.
· Paragraph 71 of the First Schedule will be amended to clarify that any other income not directly related to the project (implementation of a project financed 100% under an agreement between the Government and a development partner) earned by the non-resident employee shall be subject to tax.