More pain for Kenyans as Gov’t prepares to raid payslips again in February

The signing of the Tax Amendment Act and the Tax Procedures Act by President William Ruto on December 11th last year has set the stage for significant changes in Kenya's tax regime.

These amendments, effective from December 27, 2024, have introduced revisions to key tax laws, including the Income Tax Act, VAT Act, Excise Duty Act, Miscellaneous Fees and Levies Act, and the Tax Procedures Act.

The revised laws are expected to increase VAT and excise duties, leading to higher costs for consumer goods and business operations.

Products like sugar, alcohol, and plastics will see excise duty hikes, directly impacting prices for consumers.

Retirees will also feel the pinch as the 15% relief on contributions to post-retirement medical funds, previously capped at Ksh.60,000 annually, has been abolished, leaving them to bear the full cost.

Kevin Chege, Manager, tax and transfer pricing at PKF, says: “There were notable changes to what we call the indirect taxes statutes; we are talking about the VAT Act and the Excise Duty Act. When we come to excise duty, we have seen a sharp increase in the excise duty rate of some of the services that are offered. The other changes that came into effect that will highly likely increase the cost of living here we are talking about the increase of the railways development levy on imported goods, which has been increased from 1.5 percent to 2 percent.”

Salaried Kenyans are bracing for increased deductions starting February, as the National Social Security Fund (NSSF) contributions for tier 2 contributors earning above Ksh.36,000 will double from the current Ksh.2,160 to Ksh.4,320, following provisions in the NSSF Act of 2013.

“in 2023, the NSSF contribution was at Ksh.1,080, that increased in February 2024 to Ksh.2,160 and in the same breathe in 2025 as provided for in the NSSF Act of 2013, the contribution is going to double in 2025 to Ksh.4,320,” added Chege.

The digital sector will also experience major changes. The digital service tax has been replaced with the significant economic presence tax, which increases from 1.5% to 3% of turnover.

Additionally, a 5% withholding tax on digital platforms could reduce earnings for players in the sector.

Experts are urging Kenyans to take advantage of tax amnesties to ensure compliance, warning that tough economic times lie ahead.