Salaried Kenyans will have to tighten their grip after the Court of Appeal lifted orders suspending the implementation of the Finance Act, 2023.
The Kenya Revenue Authority (KRA) has declared intentions to backdate the new taxes listed on the Finance Act to compensate for the duration when the Act was still disputed in the Court of Appeal.
“Officers are advised that the provisions of the Act shall come into effect on the dates specified in Section 1 of the Act. The Act provides the following effective dates July 1, 2023, September 1, 2023, and January 1, 2024,” a notice by KRA read in part.
Following the tax deductions in the Act, employees will be forced to take home less than a third of their gross pay, contrary to the Employment Act 2007 which prohibits employers from deducting more than two-thirds of the basic pay from a worker.
One of the tax bands introduced in the contentious Finance Act for employees is that workers with a monthly income of Sh500,000 and above will be taxed 32.5 per cent.
Similarly, employees earning above Sh800,000 will incur a monthly deduction of 35 percent.
The increased tax measures are aimed at increasing the tax revenue to enable easier implementation of the budget.
Another deduction is on the National Housing Fund, where employees are to make a 1.5 percent contribution of their basic salary; as the employer is also obliged to make an equivalent contribution.
The government also raised the National Social Security Fund (NSSF) contributions from Sh200 monthly to six percent of workers’ salaries where they are expected to contribute Sh1,080 to the fund.
Employees are to also contribute to the National Health Insurance Fund (NHIF) which the government had proposed a 2.75 percent increase from the previous Sh1,500.
Due to the deduction, many employers are now reluctant to increase salaries for their employees since taxation also affects them.
This has left some employees holding their breath not knowing when they will face suspension as some companies have sent notices to workers about possible job termination.
“I received a letter last week from my company notifying me that the company will reduce the number of employees from September because of the implementation of the Finance Act that my employer cannot manage,” Fred Gadafi, a procurement officer told The Standard.