The PAYE system is the Kenyan government’s way of collecting income tax directly from your salary. This ensures your tax bill is settled before you receive your paycheck. Let’s explore the breakdown of PAYE deductions using Mutanu Mwende’s case as an example.
here’s a breakdown of Mutanu Mwende’s PAYE deductions in Kenya presented in a table format:
| Deduction Type | Amount (Ksh.) |
|---|---|
| Basic Pay | 190,000.00 |
| NSSF | 2,160.00 |
| Taxable Pay | 187,840.00 |
| Income Tax | 51,135.36 |
| Insurance Relief | -255.00 |
| AHL Relief | -427.50 |
| Personal Relief | -2,400.00 |
| P.A.Y.E | 48,052.86 |
| Pay After Tax | 139,787.14 |
| NHIF | 1,700.00 |
| Housing Levy | 2,850.00 |
| Net Pay | 135,237.14 |
Mutanu’s Salary and Initial Deductions
Mutanu, a dedicated employee, earns a basic monthly salary of Ksh. 190,000. This is her gross pay before any deductions are applied. First, a mandatory contribution goes towards her future social security benefits through theNSSF). This deduction amounts to Ksh. 2,160, leaving Mutanu with a taxable income of Ksh. 187,840 (Ksh. 190,000 – Ksh. 2,160).
Calculating Mutanu’s Income Tax
Kenya uses a progressive tax system, where higher incomes are taxed at a higher rate. Based on this system, Mutanu’s income tax liability is calculated to be Ksh. 51,135.36.
Reducing the Tax Burden: Reliefs and Deductions
Fortunately, Mutanu can avail of several reliefs and deductions that reduce her tax burden. Here’s a breakdown of these benefits:
- Insurance Relief (Ksh. 255.00): This encourages responsible financial planning by rewarding individuals who invest in insurance policies.
- AHL Relief (Ksh. 427.50): This relief helps ease the financial strain on those contributing to the Affordable Housing Levy, a government initiative promoting affordable housing.
- Personal Relief (Ksh. 2,400.00): This fixed deduction is provided to all taxpayers to lessen their tax obligation.
By applying these reliefs, Mutanu’s final PAYE deduction is reduced to Ksh. 48,052.86 (Ksh. 51,135.36 – total reliefs).
Net Pay and Additional Deductions
After deducting PAYE, Mutanu receives a net pay of Ksh. 139,787.14 (Ksh. 190,000 – Ksh. 48,052.86 – Ksh. 2,160). However, there are additional mandatory contributions:
- NHIF Contribution (Ksh. 1,700.00): This contribution goes towards Mutanu’s healthcare coverage under the National Hospital Insurance Fund.
- Housing Levy (Ksh. 2,850.00): This levy supports the government’s affordable housing agenda.
Once these contributions are deducted, Mutanu’s final net pay, or take-home salary, is Ksh. 135,237.14 (Ksh. 139,787.14 – Ksh. 1,700 – Ksh. 2,850).
Understanding PAYE is Key
Mutanu’s case exemplifies the intricate process of calculating income tax and other mandatory deductions in Kenya. Grasping these deductions empowers employees to manage their finances effectively and plan for their future.