The end of a calendar year signifies a time to evaluate one’s performance against a pre-set annual target as well as making plans for the following year.
It is also a time when many individuals make New Year resolutions with renewed strength, hope and aspirations. Inevitably, financial goals remain a key denominator as people strive to attain long-term financial independence.
There has been widespread concern among the public that the performance of the economy has not cascaded down to most Kenyans.
This is despite the government highlighting its achievements which include reduced inflation, modest economic growth and a reduction in the price of basic commodities. The government has also rolled out several flagship projects under the Bottom-up Economic Transformation Agenda (Beta) such as the affordable housing scheme and the Social Health Insurance Fund (SHIF).
Notably, flagship projects have come at a steep cost to most citizens and more so to employed individuals who have had to contend with a reduction in their net income due to increased deductions to their salaries and wages. This has consequently led to a reduction in discretionary spending and reduced saving rate for some employees.
Based on the changes made by the Tax Laws (Amendment) Act, 2024, the beginning of 2025 presents some relief to employees as well as other individuals who derive taxable income.
The existing tax law also provide certain benefits that employees can take advantage of to improve their well-being while boosting their prospects of long-term prosperity. Equally, employers can also implement certain measures to motivate their employees.
Often, retirement is a challenging time for many employees who do not manage to save and invest during active employment. Making regular pension contributions is one of the methods that individuals can save towards retirement.
The tax-free allowable deduction limit has remained unchanged for many years, and this is set to change with the increase of the tax-free limit from Sh240,000 per year to Sh360,000 per year.
This presents an opportunity for both employees and employers to re-look at their pension contributions in a bid to encourage savings towards retirement. Additionally, subject to certain conditions, employees will be entitled to make pension withdrawals tax-free after retirement.
Home ownership is one of the key aspirations for most adult individuals.
It has, however, remained a challenge for a vast majority of individuals due the high cost of purchasing a home or the construction thereof. On the other hand, many of those who manage to secure a home take a mortgage to finance the purchase or construction.
There is an increase in the deductible interest on mortgages taken to purchase or construct owner occupied houses from Sh300,000 per year to Sh360,000 per year. This is no doubt a positive development more so bearing in mind the current high interest environment in the country.
A healthy and well-fed employee is likely to be more productive and hardworking all which yield positive outcomes to their employers. Notably, the preparation of food in a clean and safe environment can also influence the general wellbeing and the health of employees.
Some employees go without lunch while some consume food from unhygienic places due to lack of options or limited resources which often lead to sick offs.
Employers can provide meals in a canteen or cafeteria operated or established by the employer or a third party who is a registered taxpayer for the benefit of employees’ tax-free. There is an increase in the annual tax-free limit from Sh48,000 to Sh60,000.
This incentive saves employees cash while, at the same time, leading to positive outcomes for the employers in terms of increased productivity and output.
Employees can be remunerated in form of cash or benefits in kind (non-cash benefits). While non-cash benefits do not increase the take home pay of the employees, they indirectly lead to cash savings since staff do not have to spend on the specific benefits that are provided in kind by their employer. There is an increase of the tax-free limit from Sh36,000 per year to Sh60,000 per year.
Lastly, access to decent and accessible medical care is central to every individual’s long-term prosperity. Employed individuals often tend to enjoy medical cover that is paid up by their employers.
Many employees, however, struggle to finance their medical needs post-retirement due to reduced income and dependency on their employers during employment. The law allows employees to contribute to a post-retirement medical fund during their active employment which is only accessible after retirement.
Robert Maina is an Associate Director at Ernst & Young LLP (EY). The views expressed here are personal
