The National Treasury is now proposing an amendment to the Employment Act of 2007 that would impose a 35% income tax on all monthly salaries above Sh500,000.
According to a copy of the Finance Bill 2023, Treasury is also proposing to deduct 3% of all employees’ basic salaries for a fund known as the National Housing Development Fund. The employer will match this deduction by another 3%.
Employee housing deductions are capped at Sh5,000.
Treasury proposes that employees who qualify for affordable housing have their contributions accrue and be used to finance the purchase of a house under the government’s affordable housing plan, according to the Bill.
Treasury proposes three potential outcomes with the accrued savings seven years after their first deduction or upon retirement, whichever comes first, for those who are not eligible for the affordable housing programme:
- The first is that they be allowed to transfer their accrued contributions to their retirement scheme.
- The second is that they be allowed to transfer the same to a person eligible for the affordable housing programme.
- The third is that they be allowed to transfer the same to their spouse or children or a dependent.
The final option is to allow them to withdraw their contribution in cash as long as the amount is included in their taxable income.
The Treasury proposals come as President William Ruto faces challenges in meeting the ambitious targets he has set for fulfilling key promises to the people while balancing them with a shift away from overreliance on debt.
He recently resurrected a proposal to raise taxes on Kenya’s super-rich and high-income earners, endorsing the introduction of a wealth tax, which had previously failed to pass through Parliament.
In his inaugural speech to Parliament last year, he stated that his administration will seek to raise taxes on the wealth accumulated by Kenya’s wealthiest citizens rather than raising revenue from workers and traders.
