KRA Introduces New PAYE Regulations: Key Information You Should Know

KRA Introduces New PAYE Regulations: Key Information You Should Know

The Kenya Revenue Authority (KRA) has unveiled modifications to the calculation of Pay As You Earn (PAYE) following updates in the Tax Laws (Amendment) Act of 2025. Both employees and employers will need to adapt to these new tax regulations, which emphasize deductions, reliefs, and non-taxable benefits.

KRA has identified several areas where you can now claim deductions to reduce your taxable income:

1. Affordable Housing Levy

Contributions to the Affordable Housing Levy, in accordance with the new housing laws, are now considered tax-deductible expenses.

2. Post-Retirement Medical Fund

You can contribute up to Kshs. 15,000 monthly to a retirement medical fund, which will be deducted from your taxable income.

3. Social Health Insurance Fund (SHIF): Contributions to SHIF will also lower your taxable income, supporting Kenya’s initiative for universal healthcare.

4. Mortgage Payments: If you have a home loan from approved lenders, you can deduct mortgage interest up to Kshs. 360,000 per year (equivalent to Kshs. 30,000 monthly).

5. Pension Contributions: Contributions to pension or retirement funds can now reduce your taxable income, with a cap of Kshs. 360,000 annually.

However, some reliefs that you may have previously relied on are no longer available:

• The Affordable Housing Fund Relief has been discontinued.
• The Post-Retirement Medical Fund Relief has also been eliminated.

KRA has clarified that certain employee benefits and perks will not be subject to taxation:

•  Minor perks or benefits valued at less than Kshs. 60,000 per year (or Kshs. 5,000 monthly).
• Employer-provided meals worth up to Kshs. 60,000 annually.
• Gratuities or employer contributions to registered retirement schemes, capped at Kshs. 360,000 per year.

KRA is dedicated to assisting taxpayers in understanding these new changes and encourages anyone with questions to contact their support center or visit a local tax office.

These updates aim to simplify tax calculations and promote contributions to housing, healthcare, and retirement funds. However, the removal of certain reliefs may result in a higher taxable income for some employees.