The Kenya Revenue Authority (KRA) has issued a clarification regarding the applicability of insurance relief to contributions made to the newly established Social Health Insurance Fund (SHIF).
The statement, issued on Friday, November 8, follows the implementation of the Social Health Insurance Act.
KRA clarified that the insurance relief, as provided under the Income Tax Act, does not apply to contributions made to the SHIF.
According to the KRA, the relief is only applicable to health insurance policies that began on or after January 1, 2007, or contributions made to the previous National Health Insurance Fund (NHIF), which was replaced by the SHIF under the new legislation.
“The relief as provided refers specifically to the NHIF under the repealed National Health Insurance Fund Act, and does not extend to the SHIF under the new Social Health Insurance Act,” the KRA statement explained.
The clarification comes in the wake of employees beginning to make contributions to SHIF as of October 2024.
The revised SHIF rates are significantly higher than those under the previous NHIF scheme. Employees earning between sh100,000 and sh1 million are now required to contribute between sh1,050 and sh25,800, making it one of the largest payroll deductions after income tax.
As of October 2024, Kenyan employers began deducting 2.75% of each employee’s gross salary for SHIF contributions.
These funds are remitted to the Social Health Authority (SHA), replacing the previous NHIF contributions. For example, employees earning sh450,000, sh800,000, and sh1 million are now contributing sh10,675, sh20,300, and sh25,800, respectively.
Workers earning sh100,000 will pay an additional sh1,050, while those on sh200,000 will face a sh3,800 deduction.
In response to concerns about the financial burden of these deductions, the National Treasury has proposed amendments in the Tax Laws (Amendment) Bill, 2024.
The proposal suggests that SHIF contributions, along with the housing levy, be deducted from gross salaries before taxation.
This change would effectively reduce employees’ taxable income, leading to higher take-home pay.
The proposed amendments aim to address concerns that heavy payroll deductions have left many employees with significantly reduced disposable income.
The new system would replace the current tax relief of 15% on SHIF and housing levy contributions.
Under the proposed plan, these contributions would be treated as allowable deductions, which the Treasury says would boost disposable income and enhance employees’ take-home pay.
In a preview of the Bill, the Treasury highlighted that the changes would also extend to contributions to post-retirement medical funds, up to sh15,000, further easing the financial strain on workers.
These amendments, expected to be tabled in Parliament soon, are seen as a way to increase disposable income and reduce the financial impact of multiple payroll deductions on Kenyan workers.
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