What is PAYE?
Ever scrutinize your payslip wondering where a chunk of your salary goes? In Kenya, Pay As You Earn (PAYE) plays a key role, collecting income tax throughout the year. Let’s use Tabitha Wambui, a head chef at a prestigious Kenyan restaurant, as an example to understand PAYE’s impact on your take-home pay.
PAYE is a system where the Kenyan Revenue Authority collects income tax through monthly deductions from your salary. This ensures a steady flow of tax revenue for the government.
Understanding Tabitha’s Payslip Breakdown:
The table below summarizes the key components of Tabitha’s payslip:
Description Amount (Ksh) Basic Pay 90,000.00 NSSF 2,160.00 Taxable Pay (Basic Pay – NSSF) 87,840.00 Income Tax 21,135.36 Reliefs and Allowances – Insurance Relief 240.00 – A.H.L Relief (Housing Levy Relief) 202.50* – Personal Relief 2,400.00 Total Reliefs and Allowances 2,842.50 PAYE (Income Tax – Reliefs & Allowances) 18,292.86 Other Deductions – NHIF (National Hospital Insurance Fund) 1,600.00 – Housing Levy 1,350.00 Net Pay (Basic Pay – Total Deductions) 66,597.14
Calculating PAYE:
Tabitha’s PAYE is calculated by subtracting the total reliefs and exemptions from her initial income tax amount. These reliefs help reduce her taxable income, ultimately lowering her tax burden.
Additional Deductions:
NHIF and Housing Levy are mandatory deductions on top of PAYE. NHIF provides health insurance, while the Housing Levy supports affordable housing initiatives.pen_spark
Net Pay:
This is the amount Tabitha receives after all deductions, including PAYE, NHIF and Housing Levy.
Net Pay = Ksh 66,597.14
Empowering Yourself:
Analyzing your payslip like this empowers you to understand your tax contributions and how various deductions affect your net income.