Written by Lisa Murimi
The Kenya Revenue Authority (KRA) has instructed employers to use gross pay for calculating housing levy deductions from staff salaries, adding an unexpected financial burden for workers.
The directive requires inclusion of various allowances like hardship, travel, airtime, and car allowances in monthly computations, previously omitted in the initial draft Finance Bill.
This move has surprised human resource departments and will impact MPs and top State officers who receive significant allowances.
The KRA’s decision necessitates employers to factor regular allowances into housing levy deductions, resulting in a higher deduction percentage from one’s monthly pay, including contributions from both employee and employer.
The gross-on-gross taxation method introduces double taxation, reducing take-home pay for employees.
While some allowances are excluded from the housing levy computation, the new tax measures, along with other financial adjustments like National Social Security Fund contributions and National Hospital Insurance Fund changes, are straining workers’ take-home pay and raising concerns about increased poverty levels.
Critics suggest this taxation shift could potentially lead to job losses, as some employers express difficulties complying with the additional financial obligations.
The directive from KRA has raised significant concerns among employers, employees, and financial experts, with implications for the broader economy.