Top earners hit as State backdates higher PAYE to July 1

The Kenya Revenue Authority (KRA) has backdated new taxes introduced by the Finance Act, 2023 after the Court of Appeal last week allowed the Act to be implemented.

The State Department of Housing has issued a gazette notice stating that collection of the housing levy will commence on July 1, 2023. 

Employees and employers will therefore pay the levy for July and August, which will be charged at 1.5 per cent of the gross salary of the employee, matched by a similar contribution from the employer.

This will put a huge squeeze on workers' salaries this month, while employers will now have nine working days after the end of the month to remit the levy to the KRA or face stiff penalties.

“The State Department for Housing and Urban Development would like to inform members of the public that the affordable housing levy is now in effect from July 1, 2023,” said the Department in a notice.

“This shall be remitted by the employer not later than nine working days after the end of the month in which the payments are due,” it added.

High earners have also been dealt a blow after the taxman backdated the new higher income tax rate on their earnings to July 1.

The law sets the pay-as-you-earn (Paye) rate at 32.5 per cent for individuals earning between Sh500,000 and Sh800,000 a month.

Those earning more than Sh800,000 a month will pay Paye at 35 per cent.

The move is likely to squeeze high-income earners at a time when other statutory contributions have also increased.

iTax portals

The backdating of deductions means that employed Kenyans' iTax portals will now reflect an underpayment for July 2023, which should be recovered by KRA before the end of the current financial year on 30 June 2024.

“These changes have also been effected on the unified payroll return with effect from July 1, 2023. Kindly advise taxpayers to download the latest P10 return from their profiles,” KRA said Thursday.

Small businesses have also been hit as KRA also backdated the turnover tax payable by companies with an annual turnover of between Sh1 million and Sh25 million.

The law has increased VAT from 1 per cent to 3 per cent, the same level as before the effects of the Covid-19 pandemic.

The Act has maintained the lower threshold for businesses eligible for turnover tax at Sh1 million but lowered the upper threshold to Sh25 million from Sh50 million.

Lowering this threshold means that businesses that gross between Sh25 million and Sh50 million which have been paying turnover tax will now be paying the 30 per cent corporation tax.