Kenyan employees find themselves grappling with a multitude of financial challenges, as the country's inflation rate has risen by a significant 8.5 percent in the past year.
This surge in inflation has driven up the cost of living, causing distress across all sectors of society.
The 2023 Economic Survey shows that real earnings (purchasing power) have been declining since 2020.
As individuals attempt to stretch their income to meet the increasing cost of basic commodities, there is a looming concern that increasing government deductions are thwarting these efforts and driving many employees into financial ruin.
One deduction that has already taken effect is the National Social Security Fund (NSSF) deduction of 6.0 percent, which will significantly cut employees' take-home pay.
In addition to the increased NSSF deduction, the proposed 1.5 percent housing levy introduced through the Finance Bill 2023 poses further challenges.
This deduction from employees' basic pay will go towards funding the construction of low-cost homes.
Another change is the government plan to replace the existing National Hospital Insurance Fund (NHIF) contribution system, which currently varies based on monthly income, with a standard rate of 2.75 percent of the gross monthly salary.
Under this proposal, there is no cap on the employee's contribution. All individuals will experience higher deductions except those earning below Sh30,000 per month.
The impact of these changes on the quality of healthcare coverage offered by the NHIF remains unclear, as some private hospitals refuse NHIF payments due to delays.
The cumulative effects of the increased NSSF deduction, proposed housing levy, increased Pay As You Earn (PAYE) rates for those earning above KES 500,000 per month and the NHIF changes will heavily burden employees and employers.
Employers may be reluctant to increase salaries or hire additional staff, leading to potential job cuts and outsourcing of skilled workers to avoid the mounting contributions.
It is worth noting that many individuals already face additional deductions, such as student loans or bank loans, while the rising house rents and utilities add further strain, particularly for urban dwellers. The writer is a Senior Tax Advisor with KMPG Advisory Services Limited.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
