I received the following message on 06/05/2017, 11:08 through Whatsup from a good friend about the salary increment by the President:
“The lowest salary in Kenya was 12,593 and it was non-taxable. The president announced an increment by 18% which will see the lowest salary rising to 14,859.74. This new pay is within the taxable bracket of 15%, which you will be deducted 2,228.96, Then you will go home with a net pay of 12,630.78 na Bado NHIF, Bado NSSF….. This is brain mathematics… Tricky indeed… Let’s face it… From 12,593 to 12,630.78, Uhuru just added Ksh 37.78 to the lowest paid worker… ”
I understand this message was circulating on the internet. Let us interrogate the message. Let us assume that the employee is earning the minimum taxable amount. That is the salary amount that a person pays zero tax.
It is the threshold amount beyond which the person has to pay tax. The following are the allegations and the response in the message
a. The lowest salary in Kenya was 12,593
This is not true since there are salaries that are lower than this amount in various sectors of the economy such as in the farming sector. The writer may have meant the lowest amount of taxable salary from which no tax is remitted to KRA.
The figure is not correct because if the writer meant the current amount that is under the tax bracket of 10 %, the amount is kshs 147,580 per year which translates to kshs 12,298. However, even this figure is not correct because it does not utilize fully the personal relief amounting kshs 1,408 per month. Hence, part of the salary under the 15 % tax bracket is not a taxable amount.
b. The lowest salary in Kenya was 12,593 and it was non-taxable
This statement is not correct. For the taxable salaries, the lowest salary from which no tax is remitted to KRA is kshs 13, 492. This is composed of the 10 per cent bracket of kshs 147,580 per year which translates to kshs 12,298.
This utilizes personal relief of kshs 1,229 leaving a balance of kshs 1,408 less kshs 1,229 which is equal to kshs 179. At 15 per cent, the taxable amount for kshs 179 is kshs 1,193. Hence, the total amount not subject to tax is kshs 12,298 plus kshs 1,193 = kshs 13,492.
c. The president announced an increment by 18% which will see the lowest salary rising to 14,859.74.
The President mentioned the lowest taxable amount. If we assume that he was speaking in the same spirit, then after the increase of 18 %, the lowest amount on which one will not be expected to pay any tax will be kshs 13,492 + 18 % of kshs 13,492 = kshs 15,920.
d. This new pay is within the taxable bracket of 15%
The new pay is indeed within the taxable bracket of 15 %. Unless the personal relief is increased, the people will pay kshs 15,920 – kshs 13,492 = kshs 2,428 x 15 % = kshs 364 (this is without considering NSSF and NHIF).
e. na Bado NHIF
NHIF is not a tax but health insurance. The money contributed to NHIF belongs to the employees. The contributions are for use in future in case of any health problems. The NHIF amount can be used for both outpatient and inpatient health services.
f. na Bado NSSF
NSSF too is not a tax. This is a contribution to old age. The contribution is a saving which belongs to the employee
g. Uhuru just added Ksh 37.78 to the lowest paid worker
This is propaganda based on untruth. The increase is kshs 2,428 – kshs 364 = kshs 2,064.
We hope this interrogation has clarified a few points, especially what the minimum amount meant.
Feel free to send us questions or topics on tax and investments in Kenya that you would wish to be covered in this Website.
Disclaimer
This post is for general overview and guidance and does not in any way amount to professional advice. Consequently, www.taxkenya.com, it’s owner or associates do not take any responsibility for results of any action taken on the basis of the information in this post or for any errors or omissions. Kenyan taxpayers must always rely on the most current information from KRA. Tax industry in Kenya is very dynamic.
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