Workers lose Sh2.9bn tax relief on bonuses, homes

Workers lost Sh2.9 billion in tax benefits last year after the Treasury scrapped a range of incentives, including reliefs on home ownership saving plans, bonuses, overtime allowances, and retirement benefits to staff.

Fresh data from the Treasury shows tax incentives related to personal income tax (PIT) dropped to Sh1.2 billion in 2021 from Sh4.1 billion in 2020.

The significant drop in PIT expenditure is attributed to the reduction of the exempt income from Sh3 billion in 2020 to about Sh7 million in 2021.

Treasury attributed this to the possible “deletion of exemptions through the Finance Act, 2020 of the income of a registered home ownership saving plan; income from employment paid in the form of bonuses, overtime, and retirement benefits to employees whose taxable employment income before bonus and overtime allowances does not exceed the lowest tax band”.

PIT is charged for each year of income on all the income of a person, whether resident or non-resident, which accrued in or derived from Kenya.

Tax on personal income is taxed on a graduated rate known as pay-as-you-earn (Paye) and applies to all persons who are resident in Kenya at the time of employment and to non-resident persons employed by an individual or firm that is resident in Kenya.

The Paye tax base includes wages, casual wages, salary, leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, gratuity, or subsistence, travelling, entertainment or other allowance received in respect of employment or services rendered.

As part of changes aimed at curbing expenditure on tax reliefs, the Treasury through the Finance Act 2020 slashed the contribution of the homeownership savings plan (HOSP) to zero per cent. 

The Finance Act, of 2020 deleted Section 22C of the Income Tax Act that had entitled any person who deposits funds to a registered HOSP to a deduction of up to Sh4,000 per month.

The PIT tax rate includes a personal relief (tax-free) threshold and a graduated personal income tax rate. 

Resident individuals are also subject to withholding income tax at the rate of three per cent on contractual fees and five per cent on management or professional fees. 

Non-resident individuals are subject to withholding income tax at the standard statutory rate of 20 per cent.