Updated PAYE Guide: SHIF Replacing NHIF as of October 2024
Understanding how the PAYE (Pay As You Earn) system works in Kenya is essential for both employers and employees. With the recent changes, including the transition from NHIF to the Social Health Insurance Fund (SHIF) starting from 1 October 2024, it is more important than ever to calculate deductions accurately. This guide walks you through the key aspects of PAYE, including taxable income, allowable deductions, and filing procedures, using the updated PAYE Calculator Kenya, which now incorporates SHIF deductions.
What is PAYE?
PAYE is a system where employers deduct income tax from employees’ salaries and remit it directly to the Kenya Revenue Authority (KRA). This ensures a steady flow of tax revenue for the government and compliance for employees throughout the year.
To calculate your tax deductions, using the updated PAYE Calculator Kenya simplifies the process by breaking down your monthly or annual taxable income, including the new SHIF deductions.
Taxable Employment Income in Kenya
Here’s what is considered when calculating your PAYE:
- Cash Payments: This includes all salary components such as wages, bonuses, allowances, commissions, and overtime pay.
- Non-Cash Benefits: Benefits exceeding Ksh 3,000 per month (such as car benefits, employer-provided housing, or loans with lower-than-market interest rates) are also taxable.
- Mileage Reimbursement: Any reimbursement that exceeds the AA Kenya rates for work-related mileage is taxable.
- Club Fees: Entrance and subscription fees paid by your employer are taxable if deemed a business expense.
- Applies to All Employees: Whether you’re a resident or non-resident earning income in Kenya, you’re subject to PAYE.
To calculate your taxes accurately, use the updated PAYE Calculator Kenya, which now includes SHIF contributions replacing NHIF.
Employer Responsibilities for PAYE in Kenya
Employers must ensure compliance with PAYE regulations, especially with the introduction of SHIF:
- PAYE Registration: Employers must register for PAYE if they are paying salaries or benefits.
- Tax Withholding: Deduct the appropriate amount of tax using current PAYE tax tables.
- Tax Remittance: Taxes must be remitted to the KRA by the 9th day of the following month.
- PAYE Return Filing: Employers are required to file PAYE returns, detailing tax deductions from employees.
With the SHIF now replacing NHIF, it’s essential for employers to update their systems. The PAYE Calculator Kenya has been updated to include SHIF deductions to simplify this process and ensure compliance.
PAYE Calculation: Taxable Income and Deductions
The PAYE calculation is based on your total gross salary minus allowable deductions:
- Gross Salary: Your total salary before any deductions.
- Non-Taxable Benefits: Subtract the value of any non-taxable benefits.
- Tax Brackets: Kenya’s tiered tax system has rates ranging from 10% to 35% as of July 2023.
- Allowable Deductions: These reduce your taxable income, including:
- Mortgage Interest: Up to Ksh 300,000 annually for your primary residence.
- Pension Contributions: Up to Ksh 20,000 per month.
The updated PAYE Calculator Kenya helps apply the correct tax rates and deductions, including SHIF contributions.
SHIF Replacing NHIF
As of 1 October 2024, the Social Health Insurance Fund (SHIF) replaces the National Hospital Insurance Fund (NHIF). Contributions to SHIF are calculated as 2.75% of the gross salary, with a minimum contribution of KES 300 per month and no maximum limit. Employers must remit these contributions by the 9th day of the following month, along with PAYE.
As of November 8, 2024, the Kenya Revenue Authority (KRA) clarified that insurance relief previously available for contributions to the National Health Insurance Fund (NHIF) does not apply to contributions made to the Social Health Insurance Fund (SHIF) under the new Social Health Insurance Act. Currently, the Income Tax Act only provides insurance relief for NHIF contributions. However, an amendment proposed in the Tax Laws (Amendment) Bill, 2024, seeks to make SHIF contributions deductible from taxable income.
The updated PAYE Calculator Kenya incorporates SHIF contributions, ensuring employers and employees are compliant with the new health insurance requirements.
Tax Reliefs in Kenya
Employees are entitled to various tax reliefs:
- Personal Relief: Currently set at Ksh 2,400 per month for residents.
- Other Reliefs: These include reliefs for insurance premiums and post-retirement medical fund contributions.
The PAYE Calculator Kenya now includes SHIF contributions alongside these tax reliefs, giving you a clear picture of your tax liability.
PAYE Tax Rates in Kenya
The tax rates in Kenya are tiered, and the updated PAYE Calculator Kenya helps break down the applicable rates:
| Monthly Pay Bands (Ksh) | Annual Pay Bands (Ksh) | Rate of Tax (%) |
|---|---|---|
| On the first Ksh 24,000 | On the first Ksh 288,000 | 10% |
| On the next Ksh 8,333 | On the next Ksh 100,000 | 25% |
| On the next Ksh 467,667 | On the next Ksh 5,612,000 | 30% |
| On the next Ksh 300,000 | On the next Ksh 3,600,000 | 32.5% |
| On all income above Ksh 800,000 | On all income above Ksh 9,600,000 | 35% |
The PAYE Calculator Kenya allows you to input your salary and see your exact tax obligations, including SHIF contributions.
PAYE Example Calculation
Let’s assume your gross salary is Ksh 100,000 and you contribute Ksh 10,000 to a registered pension scheme. Here’s how your tax is calculated:
- Taxable Income = Ksh 100,000 – Ksh 10,000 (pension contribution) = Ksh 90,000.
- The first Ksh 24,000 is taxed at 10%, and the remaining Ksh 66,000 falls under the 25% tax rate.
Tax Payable:
- (Ksh 24,000 x 10%) + (Ksh 66,000 x 25%) = Ksh 2,400 + Ksh 16,500 = Ksh 18,900.
The updated PAYE Calculator Kenya will automatically calculate the tax based on these inputs and include SHIF deductions.
Affordable Housing Levy
Both employers and employees contribute 1.5% of the gross monthly salary to the Affordable Housing Levy. This contribution is factored into the updated PAYE Calculator Kenya.
PAYE Filing Process in Kenya
- Compile employee data and submit it via a PAYE return on iTax.
- Log in to iTax to file the return, even if it’s a nil return.
The updated PAYE Calculator Kenya can assist in gathering accurate information for your return, including SHIF contributions.
PAYE Penalties for Non-Compliance
Non-compliance with PAYE regulations results in penalties:
- Late Filing: Penalty of 25% of the tax due or Ksh 10,000, whichever is higher.
- Late Payment: 5% of the tax due plus 1% interest per month.
- Failure to Deduct and Remit: 25% of the tax due or Ksh 10,000, whichever is higher.
With the transition from NHIF to SHIF now integrated into the PAYE system, it’s crucial for employers and employees to stay updated on their tax obligations. The updated PAYE Calculator Kenya makes this process easier by incorporating SHIF contributions, ensuring compliance and accurate tax calculations.