Income tax lowered to boost workers’ pay

Treasury Secretary Henry Rotich (centre) having a chat with lawmakers after presenting the 2017/2018 budget speech at Parliament Buildings yesterday. PHOTO | JEFF ANGOTE | NMG 

By LYNET IGADWAH

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Summary

• Treasury secretary Henry Rotich said the increase in tax bands was informed by the need to boost the take-home pay of low-income earners.
• Under the proposed changes, workers will only pay taxes if they earn at least Sh13,486 per month, with the upper band falling on incomes above Sh46,960 per month.
• Any portion of income above Sh46,960 falls in the upper-most band that will attract the top tax rate of 30 per cent.
• The portion of incomes beyond the second band up to Sh36,473 will be taxed at 20 per cent.

Taxpayers will benefit from another 10 per cent increase in income tax bands and personal relief in a raft of measures proposed by the government to ease the burden on low-income earners.

Treasury secretary Henry Rotich said the increase in tax bands was informed by the need to boost the take-home pay of low-income earners.

READ: Rotich presents Sh2.62trn budget in Parliament

A similar review done last year took effect in January and offered workers up to Sh600.

At the moment, the lowest band starts at Sh11,180 per month while the upper band falls on incomes from Sh42,782 per month. It is from the upper band that the maximum 30 per cent tax rate is applied.

Under the proposed changes, workers will only pay taxes if they earn at least Sh13,486 per month, with the upper band falling on incomes above Sh46,960 per month.

That means incomes of Sh13, 486 per month will attract taxes at 10 per cent, and the portion beyond the first band at 15 per cent up to Sh23,886 per month, up from the current Sh21,715.

The portion of incomes beyond the second band up to Sh36,473 will be taxed at 20 per cent, with the rates rising to 25 per cent on incomes up to Sh46, 960 per month.

Any portion of income above Sh46,960 falls in the upper-most band that will attract the top tax rate of 30 per cent.

The changes will also see personal relief go up by 10 per cent, from the current flat rate of Sh1,280 per month.

“This measure will to a large extent increase the take-home income of a majority of low-income earners,” said Mr Rotich.

“I wish to confirm that the exemption of bonuses, overtime and retirement benefits paid to the low-income earners will remain.”

The tax relief comes as flat or declining sales coupled with growing concern over the August General Election has left dark clouds hanging over the labour market, forcing the majority of employers to freeze plans to hire or raise workers’ salaries.

Hiring freeze

A job market survey, commissioned by the Institute of Human Resource Management (IHRM), found that 73 per cent of employers across 12 sectors have stopped new hiring.

More than 57 per cent of the firms also indicated that they will not increase employees’ pay this year while the remaining 43 per cent will marginally adjust salaries to compensate for inflation.

Consumer prices rose by 9.04 per cent, the highest inflation rate since June of 2012 owing to a sharp rise in food prices caused by drought.

The study found that reduced private sector credit uptake and the freeze in expansion plans by investors awaiting the outcome of the August election had slowed down the creation of new jobs.