Amendments to Kenya's Tax Laws on Employment Income for 2024

The Tax Laws (Amendment) Act, 2024, gazetted on December 13th, 2024 and effective from December 27th, 2024, has introduced several changes that will have considerable impacts on employee benefits and contributions. The amendments aim at increasing relief for employees by raising tax-exempt limits and expanding allowable deductions, hence reducing taxable income.

1. Increased Tax-Exempt Limits for Employee Benefits

The bill enhances the tax relief on employment benefits by amending the following thresholds:

Non-Cash Benefits

The value of a benefit, advantage, or facility of whatsoever nature, the aggregate value of which is not less than KSh 60,000 annually, shall be exempt from tax. This is an increase from the previous threshold of KSh 36,000 annually.

This adjustment applies to gains or profits arising from employment or services rendered, to ensure that employees enjoy increased tax-free benefits.

Meal/ Lunch Benefits

The tax-free threshold for meals provided at the workplace increases from KSh 48,000 to KSh 60,000 per annum. This exemption applies whether the meals are supplied directly by the employer or through a third-party registered taxpayer.

2. Deductible Contributions

The Bill categorizes the following as deductible contributions and hence is allowable as a deduction in arriving at taxable income:

Pension Contributions

The annual tax-deductible limit for employee contributions to registered pension funds increases from KSh 240,000 to KSh 360,000 annually or from KSh 20,000 to KSh 30,000 monthly. Employers' contributions are adjusted to the same limit, encouraging retirement savings.

Post-Retirement Medical Fund

Contributions to post-retirement medical funds are deductible up to KSh 15,000 per month.

Social Health Insurance Fund (SHIF)

Contributions to SHIF are now deductible before tax.

Affordable Housing Levy

Contributions to the Affordable Housing Levy, which replaces the previous Affordable Housing Relief, are allowable as a deduction in arriving at taxable income.

3. Mortgage Interest Relief

To further ease the cost of home ownership, the bill increases the allowable deduction for mortgage interest payments from KSh 300,000 to KSh 360,000 annually.

Conclusion

The Tax Laws (Amendment) Act, 2024, provides employees with significant relief by raising tax-exempt benefits and providing tax-deductible contributions, which in turn reduce taxable income. Employees are set to benefit from enhanced incentives for retirement, health insurance, and home ownership.

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