How Kenya's first income tax in 1966 made marriage so attractive

Ditching the bachelors’ club in the 1960s and informing your employer that you are married meant the Government deducted less of your monthly income to enable you meet family responsibilities.

In his June 10, 1965 address, the then Minister of Finance James Gichuru in his budget statement in parliament announced that Pay as You Earn (PAYE) would be introduced the following year.

As captured in The East African Standard, in his June 15, 1966 budget, Mr Gichuru dropped the bombshell - introducing PAYE for the first time.

But the structure of the income tax would later turn marriage into a safe haven for those who wanted to escape huge tax. That year, as workers received forms for returns of income to be completed for 1965, there was an additional disclosure - a leaflet in blue print headed PAYE which explained the new system of deduction of tax from earnings.

“Notice is hereby given to employers who have not received a supply of PAYE forms by April 30, 1966 to notify their local income tax office and to supply that office with their name and address.....,” said S.K Sebagereka, commissioner of income tax in March 1, 1966 gazette notice.

The new scheme that kicked off in July 1966 roped in company directors, local government Councillors and ministers of the central government as well as any resident pensioner whose pension was being paid within East Africa.

While married men earning up to Sh1,000 per month would not pay any income tax to the government, being single meant that government would tax one’s income from as little as Sh360 per month.

This means that staying long in bachelors’ club could cost one a lot in taxes compared to his married peers.

At that time, women’s income was taxed on a man’s pay slip. Therefore, upon marriage, an employee who got a pay rise that took his salary to not more than Sh1,000 would mean no income tax is deducted on his salary.

And for married men, once they sire children, tax incentives, called child allowance, would follow. Husbands earning more than Sh1,000 were entitled to higher allowances to reduce the pain of the tax. The assumption was that they needed more money to feed their families. At that time, government used to deduct Sh2 for every Sh50 earned. In addition, a surtax- an additional tax on income already taxed, such as a higher rate of tax on incomes above a certain level- was introduced. Any single person with an income of more than £1,216 per year (Sh24,320 per year or Sh2,027 per month) would pay surtax. But if married, only income above £1,600 (Sh32,000) per year could attract surtax.

And just like income tax, once children set in, the surtax came in at much higher incomes.

Therefore, employees received allowance claim form as the tax set in. This was a form from the employer designed to show if they were entitled to single allowances, married allowances or married and with a child or children allowances.

“After he has completed it and signed it, he must return it to his employer who will work out from it the “Free Monthly Pay” which the employer is entitled,” wrote The East African Standard on Tuesday January 11, 1966.

Monthly pay

Failure to complete the form meant that employers would entirely miss out on the ‘free monthly pay.” This free monthly pay used to be one twelfth of the income tax personal allowances.

Therefore, a married man entitled to the marriage allowance of £600 (Sh12,000) would receive Free Monthly Pay of £50 (1,000). It was called free monthly pay because it was a section of earnings that could not be subjected to any taxation.

Marrying therefore moved one’s free monthly pay from £18 (Sh360), due to him as single man, to £50 (Sh1,000). This meant that upon marrying, a person would feel less tax pain. Any pay in excess of free monthly pay was called chargeable pay and was subjected to deduction of tax at Sh2 per Sh50 in the pound.

For instance, a married employee who receives £90 as monthly salary would have Sh2 out of Sh50 in the pound deducted from £40 of the salary.

Married women in employment were not entitled to free monthly pay since the total allowances due to the husband and wife will be calculated on husband’s income.

However, in cases where the man felt that his income was not sufficient to absorb all the wife’s allowances, he could apply to have part of the allowances set against his wife’s earnings.

The tax table was displayed everywhere in the working place so that employees could calculate the tax on their own for better planning. At that time, £1 was equivalent to Sh20.

Related Topics

PAYE tax