Low salary earners hit in income tax band adjustment

Low salary earners are expected to feel the pinch of higher income tax/PAYE in the New Year should President Uhuru Kenyatta assent to the newly passed Tax Laws (Amendment) [No.2] Bill, 2020.

The bill passed in the National Assembly on Tuesday carried amendments to income tax bands which eliminate rates of tax at 15 and 20 per cent.

The impact of this elimination will see earners in the middle remit a greater amount of tax to the exchequer every month.

For instance, a Kenyan earning a gross salary of Ksh.40,000 per month would before the pandemic remit 25 per cent of earnings as PAYE every month.

During the pandemic and after the consideration of tax relief measures, such an earner would remit a lower 15 per cent of incomes as tax.

From January 1, a Kenyan earning Ksh.40,000 a month will remit a higher 30 per cent in PAYE after the Parliamentary effected changes.

In absolute terms, the 40k earner is set to move from remitting Ksh.10,000 as tax before the pandemic and Ksh.6000 during the stay of COVID-19 relief measures to shedding Ksh.13,500 of earnings after January 1, a doubling of his or her tax charge.

This before applying of tax relief which was raised during the pandemic to Ksh.28,800 per year or Ksh.2,400 which lowers the effective tax charge to Ksh.11,100.

Under the new individual rates of tax calculated annually, the first 288,000 in earnings or about Ksh.24,000 will attract a 10 per cent PAYE rate.

The next Ksh.100,000 to Ksh.388,000 or Ksh.32,333 will attract a PAYE rate of 25 per cent with all earnings above the threshold attracting a higher 30 per cent PAYE rate.

The tax band adjustment is aimed at improving revenues for the National Treasury through income tax which is remitted by salaried Kenyans on a monthly basis.

In the year ended June 30, the exchequer collected Ksh.399.2 billion in PAYE revenues against a target of Ksh.399.4 billion with the Ksh.210 million largely attributed to tax relief measures effected in the fourth quarter of the fiscal year.