New Payroll Tax Changes in Kenya 2025

In this edition, we will focus primarily on the payroll tax changes for 2025, covering all updates on PAYE and related payroll computation rules. These changes are critical for businesses and individuals to comply with.

Notably, the Tax Laws Amendment Act, 2024, and the Tax Procedures Amendment Act, 2024, which took effect on December 27, 2024, introduce significant updates to payroll taxation.

Additionally, we will highlight other expected changes in the payroll tax framework for 2025 that will affect employers and employees.

Kenya 2025 PAYE Computation Amendments

The Kenya Revenue Authority (KRA) had announced as of December 19, 2024 that, effective December 27, 2024, the following changes were to apply to the computation of PAYE for subsequent periods, as per the Tax Laws (Amendment) Act, 2024:
 

1. Deductible amounts for taxable employment income include:

(i.e. what qualified to be an Allowable Deduction)

• Affordable Housing Levy contributions (AHL).
  • AHL = 1.5% of Gross Pay, excluding non-regular cash benefits.
• Contributions to the Social Health Insurance Fund (SHIF).
  • SHIF = 2.75% of Gross Pay, excluding non-regular cash benefits.
• Contributions to a post-retirement medical fund, capped at Kshs. 15,000 per month.
• Contributions to a registered pension, provident fund, or individual retirement fund, capped at Kshs. 360,000 annually (Kshs. 30,000 per month).
• Mortgage interest, up to Kshs. 30,000 per month, for loans taken from specific financial institutions listed in the Income Tax Act’s Fourth Schedule, used to purchase or improve residential property.
   

2. Tax reliefs that will no longer apply:

• Affordable Housing Relief.
• Post-Retirement Medical Fund Relief.
   

3. Tax reliefs that will apply:

• Insurance Relief: Capped at Kshs. 5,000 per month, covering:
  • Life insurance policies with registered insurance companies in Kenya.
  • Education insurance policies with registered insurance companies in Kenya.
• Monthly Personal Relief equivalent to Kshs. 2,400
   

4. Exclusions from gains and profits derived from employment:

(i.e. what qualified to be Tax Exempted (non-cash benefits)

• Benefits provided by an employer, where the total value does not exceed Kshs. 5,000 per month, are exempt from tax.
  • E.g. airtime, travel allowances, electricity, internet, gifts, presents, non-cash rewards, incentives , etc
  • Value above Kshs. 5,000 is taxed full amount
• The first Kshs. Kshs. 5,000 per month of MEALS provided by an employer.
  • Value above Kshs. 5,000 is taxed full amount
• An amount up to Kshs. 360,000 paid by an employer as GRATUITY or similar payments for each year of service, when contributed to a registered retirement pension scheme.

NOTE: These changes reduce the monthly PAYE, providing relief to all primary employees.

New NSSF Rates 2025

The National Social Security Fund (NSSF) Act, 2013, has been amended annually, typically in February. Key changes include higher contribution rates, the inclusion of workers in the informal sector, and the establishment of a two-tier contribution system.

Below is a clear comparison of the current rates versus the new rates effective from February 2025:

NSSF contributions based on the new rates will be effective starting with the February 2025 payroll and will continue thereafter. Remittances to NSSF should be made by the 9th of each subsequent month.
 

At ElevateHR, we understand the complexities that payroll changes can bring. That is why our HR Tech platform and our payroll outsourcing services are always up to date, reflecting the latest laws and amendments as soon as they are enacted. With our solution, you can be confident that your payroll calculations will always align with the most current tax and legal requirements, saving you time and ensuring compliance.