Understanding Paye deductions in Kenya is crucial for both employees and employers. Paye is the tax charged on employees’ earnings, which employers must deduct and remit to the KRA. Let’s explore the Paye deductions using the example of Oscar Liam, who earns a basic salary of Ksh 1,000,000 per month.
A table breakdown of Ksh 1,000,000 salary Paye
Here’s a table summarizing the breakdown of Oscar Liam’s salary in Kenya:
| Description | Amount (Ksh) |
|---|---|
| Basic Pay | 1,000,000.00 |
| NSSF | 2,160.00 |
| Taxable Pay | 997,840.00 |
| Income Tax | 311,527.36 |
| Insurance Relief | -255.00 |
| AHL Relief | -2,250.00 |
| Personal Relief | -2,400.00 |
| PAYE | 306,622.36 |
| Net Pay | 691,217.64 |
| NHIF | 1,700.00 |
| Housing Levy | 15,000.00 |
| Net Take-Home Pay | 674,517.64 |
Basic Salary and Initial Deductions
Oscar Liam’s basic salary is Ksh 1,000,000. The first statutory deduction applied is the NSSF contribution, which amounts to Ksh 2,160. This deduction is mandatory and helps secure retirement benefits for employees.
After deducting the NSSF, Oscar’s taxable pay stands at Ksh 997,840. This is the amount subjected to income tax.
Income Tax Calculation
Oscar’s income tax on his salary is Ksh 311,527.36. We calculate this amount based on Kenya’s graduated Paye tax bands. The more you earn, the higher the tax rate applied to your salary.
Reliefs Applied
In Kenya, taxpayers are entitled to various tax reliefs which help reduce the overall tax burden. For Oscar, these reliefs include:
- Insurance Relief: Ksh 255.00
- AHL Relief: Ksh 2,250.00
- Personal Relief: Ksh 2,400.00
We subtract these reliefs from the income tax amount. After applying the reliefs, Oscar’s Paye (income tax payable) reduces to Ksh 306,622.36.
Additional Deductions
Beyond Paye, Oscar’s salary includes other deductions:
- NHIF: Ksh 1,700.00. This is a mandatory health insurance contribution.
- Housing Levy: Ksh 15,000.00. This is a new contribution aimed at funding affordable housing schemes in Kenya.
Net Pay Calculation
After accounting for all deductions, we calculate Oscar’s net pay as follows:
- Paye (after reliefs): Ksh 306,622.36
- NHIF: Ksh 1,700.00
- Housing Levy: Ksh 15,000.00
By subtracting these deductions from the taxable pay of Ksh 997,840, Oscar’s pay after tax stands at Ksh 691,217.64. After further deducting the NHIF and Housing Levy, Oscar’s final net pay is Ksh 674,517.64.
Summary
Oscar Liam, with a basic salary of Ksh 1,000,000, faces significant deductions due to statutory requirements. Here’s a quick recap of his monthly salary breakdown:
- Basic Pay: Ksh 1,000,000.00
- NSSF: Ksh 2,160.00
- Taxable Pay: Ksh 997,840.00
- Income Tax: Ksh 311,527.36
- Insurance Relief: Ksh -255.00
- AHL Relief: Ksh -2,250.00
- Personal Relief: Ksh -2,400.00
- PAYE: Ksh 306,622.36
- Pay After Tax: Ksh 691,217.64
- NHIF: Ksh 1,700.00
- Housing Levy: Ksh 15,000.00
- Net Pay: Ksh 674,517.64
In conclusion, understanding these deductions helps employees like Oscar plan their finances better. Employers also benefit by ensuring compliance with statutory regulations, thus avoiding penalties. Therefore, comprehending the Paye system and its implications is essential for the smooth functioning of both personal and organizational financial management in Kenya.