Updated Post 12 July 2023 @ 14:30pm
We have just received the following information from our Compliance Team with regard to the Kenya Tax table changes:
The tax changes introduced in the Finance Act No.4 of 2023 are suspended by the High Court of Kenya.
The Kenya Revenue Authority confirmed that they have not yet shared any communications regarding this matter.
This means that until further notice, the revised tax tables and the affordable housing levy should not be put into effect.
References:
- https://techpoint.africa/2023/07/11/high-court-indefinitely-suspends-kenyas-finance-act-2023/
- https://www.reuters.com/world/africa/kenyas-high-court-declines-government-bid-unfreeze-tax-hikes-2023-07-10/
Note: If you have made any changes to your payroll system as per the original communication. You will be required to restore your backups to the original payroll before changes.
Original post:
The Finance Act, 2023 was assented by the Presidential on 26th June 2023. The legislative highlights that affect payroll processing are as follows:
Tax Rates
Effective 1 July 2023
Secondary Employees will be taxed at 35% as from 1 July 2023
Affordable Housing Levy
Effective 1 July 2023
The Act has introduced a monthly levy, known as the Affordable Housing Levy, where both employees and employers are both subject to the levy at 1.5% of the employee’s gross salary.
Employer – 1.5% gross salary
Employee – 1.5% gross salary
According to the interpretations in Section 2 of the Employment Act, the employee’s gross salary is the basic salary.
It is the responsibility of the employer to deduct and remit the Levy within 9 working days after the end of the month in which the payments are due.
Affordable Housing Relief
Income Tax Act, Third Schedule, Head A (3)
The amount of affordable housing relief shall be 15% of the employee’s contribution; but shall not exceed KShs108 000 per annum (KShs9 000 per month).
The Tax Tables are only applicable from 1 July 2023 and not for the full Tax Year.
Due to this change only applicable for the part of the tax year, you will be required to prepare your payroll as per the steps below before installing the tax file.
All steps up to point 7, MUST be completed before the new tables are installed
Please follow the steps below in your Current Kenya Company:
1. Ensure that your company is in July 2023. If not please do a Start of Period before continuing with the process.
2. Copy the Company structure to a new number and access the new company
(On the company list, select Add Company > Copy Company Structure)
3. Access the newly created company to ensure that it created correctly
4. Transfer employees from current company to the new company
- Transfer without YTD figures
- Transfer without Clear Payslip
- Termination Date = 30/06/2023
- Tax Year Start Date = 01/07/2023
- Retain existing Engagement Date and Service Period (From the Main Menu > Employee >Transfer Employee)
- Transfer From: (this will be the original Kenya Company)
- Transfer To: (this will be the new Kenya Company)
5. Clear the payslips for July in the current company (this will be in the original company) There might be a Tax difference in July because the employees were terminated for a previous month. Decide how you want to handle the tax differences. (Refund to the employees; load it as additional tax to get a zero Net Salary effect; or load it as additional tax to get a zero Net Salary effect and then load the same values in the new company as additional tax
6. Print a report with Tax values per employee
7. Print month end reports and create payment files if needed
8. Make a backup and roll the company with terminated employees to a new pay period to avoid any further tax calculations.
Follow the steps below in your New Company
9. Ensure that all Payslip values are correct
10. Do the input for July
11. If you decided to carry tax values over to the new company – capture the additional tax values
12. Install the new Tax Tables – Version 202303
13. After Installing the new Software, it is advisable to do a General Recalculation in the company. Access your Kenya Company. From the Main Menu, click on Payroll and then select General Recalc. When you get the message “Do you want to Recalculate the Earnings and Deductions for ALL Employees?” click on Yes
Installation Instructions
Before installing the tax files:
- Make sure that you are currently on Release 6.0b
- Make a backup of the company
Tax File version: 202303