The Finance Act, 2023 (the Act) was assented to by the President on June 26, 2023.
In this alert, we provide a summary of the changes to the Income Tax Act (“ITA”) with a focus on personal income tax (Pay As You Earn – PAYE).
The effective date for these changes is 1 July 2023, unless specified otherwise in the sections herein. For a detailed analysis of the changes in the Finance Act 2023, please review the tax alert – Highlights of Finance Act, 2023.
Introduction of additional tax bands and increase of the marginal tax rate for individuals
The Act has introduced two additional tax bands above the current marginal tax rate of 30% i.e., 32.5% applicable to individuals earning monthly incomes between Ksh.500,000 and Ksh.800,000, and 35% applicable to individuals earning monthly incomes of more than Ksh.800,000. The new rates of tax are as shown below and shall take effect from 1 July 2023.
In view of this change, KRA will be required to roll-out new tax return templates for employers and employees for purposes of submitting returns and making the correct tax payments for the period starting July 2023.
Employers will also be required to update their payroll systems to align with the new PAYE rates effective July 2023.
Given the percentage of employees in Kenya who earn Ksh.500,00 or more per month, this change will result in a slight increase in PAYE revenue for the government.
The net take home pay for the affected individuals is expected to reduce.
Please note that the High Court issued conservatory orders suspending the implementation of the Finance Act 2023. The analysis in this alert will only be applicable once the conservatory orders are lifted.