Employment Income Tax: Implications for Employer-Provided Meals (Kenya)

On April 4, 2024, the Kenya Revenue Authority (KRA) released an important clarification regarding the taxation of employment income under the Finance Act, 2016, and the Income Tax Act Cap. 470. The clarification addresses the technical circular REF:1005/1 dated March 1, 2017which applied section 5(4)(f)  of Income Tax Act.

The Finance Act, 2016, implemented various changes designed to expand the tax base and ensure equitable tax administration. One of the amendments dealt with the taxation of non-cash benefits provided to employees, which includes employer-provided meals. Under section 5(4)(f) of the Income Tax Act, the value of meals provided by an employer to an employee up to a certain threshold was considered a non-taxable benefit.

KRA's recent clarification states that:

“Where an employer provides meals whose value is above the Kshs. 48,000 per annum per employee, the whole value of the meal ceases to be a non-taxable benefit under section 5(4)(f) of the Income Tax Act and is subjected to tax on the employee.”

This means that if the annual value of meals provided by an employer exceeds Kshs. 48,000 per employee, the entire value of these meals will now be considered taxable income. This represents a significant shift from the previous understanding, where only the amount exceeding the threshold was taxable.

Employers should proactively review their benefits packages and make necessary adjustments to align with this clarification, thereby avoiding potential tax liabilities and ensuring legal compliance.

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