Employee Share Option Schemes
National Assembly
Per Diem
Salaries and Remuneration Commission

High-Income Earners Set to be Charged 35pc for Incomes Exceeding Sh9m Annually

High-income earners making more than Sh750,000 per month (over Sh9 million per annum) will be taxed at a rate of 35 percent if the National Assembly approves the Draft Income Tax Bill 2018. The proposed tax aims to increase revenue collections from high-income earners.

“What one would have hoped for was a general review of the bands to widen them further in line with inflation and cost of living,” Deloitte Kenya says in its analysis report of the Bill.

Per Diem allowances paid to employees for work done outside the workplace will not be taxed as long as it does not surpass the Per Diem rates given by the Salaries and Remuneration Commission (SRC). Currently, taxable Per Diem is capped at Sh2,000 making the proposed change a relief to employees.

“This provision may, however, pose a challenge to private sector employers in terms of aligning their Per Diem rates based on the job grades as provided in the SRC circular,” Deloitte’s report states.

The Bill also proposes taxing employees on benefits gained from Employee Share Option Schemes (ESOPs) that are registered with “the Commissioner at the date of exercising his option to acquire the shares.”

The current Income Tax Act charges tax on a wife’s income on the husband in some instances. However, the Bill has removed the applicable tax rates on wife’s employment and professional incomes. That means that spouses will be taxed separately and will be expected to file their own individual taxes.

The Bill has also given a clearer definition of a permanent home “as the place where a person lives in or is available to him for purposes of residing while in Kenya or the place where personal and economic interests are closest.”

Currently, a Kenyan citizen is considered to have a permanent home whether or not they live in the country by virtue of being a citizen.

According to Deloitte’s report, “This implies that Kenyan citizens can now break residency for tax purposes if they are deemed not to have a permanent home in Kenya and no personal and economic interests. A welcome move that will reduce their compliance burden and is in line with best practice.”

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