KRA is going after all your allowances: Here is how!
All regular cash allowances will be taken into account when calculating employees’ deductions for the housing tax introduced by the Finance Act 2023, the Kenya Revenue Authority (KRA) has said.
This means that benefits such as car allowance, travel and commuting allowance, and communication/airtime will be added to the basic salary before the 1.5 per cent housing tax deduction is made. The employer is required to match the employee’s contribution.
The clarification by the KRA yesterday was made necessary because the Employment Act of 2007 does not define gross salary, yet it is the legislation that is relied upon to guide deductions meant to fund the government’s affordable housing agenda.
However, workers have been given a reprieve when it comes to one-off bonuses, pension, holiday pay and severance pay, as these are excluded from the calculation of the tax. “Gross monthly salary includes basic salary and regular cash allowances.
This includes housing allowance, travel or commuting allowance, car allowance and such regular cash payments and would exclude those that are not in cash and those that are not paid regularly such as leave allowance, bonus, gratuity, pension, severance pay or any other terminal dues or benefits,” KRA said in a public notice.
The taxman also clarified that all employees, whether permanent and pensionable or on contract basis, will be taxed. However, KRA has disallowed employees claiming of relief for the housing tax under Section 30A of the Income Tax Act.
This is in contrast to the Jubilee government’s Boma Yangu initiative, which allowed Kenyans saving in registered affordable housing schemes to enjoy personal relief.
“Taxpayers paying housing levy under section 31B of the Labour Act are not eligible for affordable housing relief under section 30A of the Income Tax Act Cap 470,” KRA said.
The clarification comes two weeks after the Housing Department announced the backdating of the housing tax deductions to July 1.