Workers will begin enjoying a lesser tax burden from this month as the government moves to cushion homes from the high cost of living.
Adjustments by the Treasury on the Pay-As-You-Earn (PAYE) bands and monthly personal relief (MPR) means that workers will take home more money depending on salary levels.
Beginning the end of this month, the income tax bands will be expanded by a further 10 per cent as promised in last year’s budget by Treasury secretary Henry Rotich, who also announced that he will increase taxpayers’ monthly personal relief from Sh1,280 to Sh1,408.
The changes will yield monthly tax savings ranging from Sh184 to Sh667.5 depending on salary.
This will be the second year running that the government has tweaked the tax bands, building on a similar 10 per cent expansion of the personal relief and tax categories in January last year that resulted in savings of between Sh181 and Sh609 per month.
The changes will raise the effective tax-free income threshold from Sh12,260 to Sh13,486, largely benefiting those at the bottom of the income pyramid such as security guards, waiters, messengers and cooks.
Mr Rotich said the reforms are intended to benefit low-income earners while reducing income inequality.
The tax savings, which amount to about one per cent for most employees, will however be eroded by inflation which has averaged at 8.1 per cent in the past 12 months.
The changes will benefit high-income earners the most in absolute terms, with those paid a gross salary of Sh50,000 and above set to record monthly savings of Sh667.5.
Employees with lower salaries will get smaller tax cuts starting, for instance, at Sh184 per month for those earning Sh20,000 whose tax will fall to Sh977 from Sh1,161 after the relief is deducted.
For instance, the lowest paid teacher — a primary school teacher II, whose grade has been categorised as T scale 5, and currently earns between Sh21,304 and Sh24,250, will, at the end of the month be expected to pay income tax of between Sh1,173 and Sh1,246 respectively.
The highest paid teacher on the other hand, a chief principal, whose grade has been categorised as T scale 15, and whose gross salary is between Sh144,928 and Sh148,360 is now expected to pay tax of between Sh43,056 and Sh44,085.
The lowest paid doctor, who earns a gross salary of between Sh54,532 and Sh68,165, will now be face the personal relief deductions, the balance of which will be subjected to a 30 per cent tax, which is charged on income above Sh47,059.
This means that at the end of this month, doctors in this category will pay tax of between Sh15,937 and Sh20,027.
On the other hand, the highest paid doctors who earn a gross salary of between Sh221,058 and Sh282, 954 will at the end of this month pay a tax of Sh65,895 and Sh84,464.
While low-income earners have gained less from the changes, they will continue to be the exclusive beneficiaries of tax exemption on their bonuses, retirement and overtime pay that took effect in January last year.
The exemption only applied to workers whose taxable employment income before bonus and overtime allowances do not exceed the lowest tax band previously set at Sh134,164 annually or Sh11,180 a month.
The taxable floor will rise to Sh147,580 per year or Sh12,298 monthly this year. The first band is taxed at a rate of 10 per cent, with the levies rising in a series of taxable income bands that terminates at the maximum of 30 per cent on the highest band, which currently starts from Sh42,781.