Employees on net pay contracts may not enjoy the new tax rates.
By Gibson Kuria
The COVID 19 pandemic has caused many jurisdictions to restructure their tax regimes, more specifically the tax rates on incomes, goods or services that are subject to tax. On 25th April 2020, the President of the Republic of Kenya assented into law the Tax Laws (Amendment) Act, 2020 as a way to sustain the economy during this unusual season.
The law has introduced several changes which have a direct impact on Personal Income Tax, which are: reduction of the tax rate to 25% from 30%, tax relief on individuals has also increased by 70%, to Kshs.2,400 from Kshs.1,408 on a monthly basis. The net effect of this including the enhanced tax bands is that individual disposable income has increased offering much needed relief to salaried individuals.
However, please note that the changes in Personal Income Tax are only beneficial to employees whose contracts are on a gross salary basis. There are several instances where employees are keen to have a net of tax pay in their contracts and in that case the burden of tax is on the employer. Companies mainly enter into net pay contracts especially if the employees are foreigners and they do not want any tax consequences within the country. Net pay contracts are also common to foreign owned companies operating in Kenya.
In such instances, the employee’s salary will not change since the agreement is on the net pay, however, the employers will save money on the tax obligation since they bear the burden of the tax and not the employee.
If you have any questions or concerns, please do not hesitate to be in touch with your direct contact at Andersen Tax. We are determined to weather the storm together.
Thank you for your continued collaboration and trust.
Andersen Tax in Kenya
7th Floor Rhapta Heights Rhapta Road P.O. BOX 76491-00508 Nairobi, Kenya
Tel: +254 20 2199064 or +254 20 5100263