How Your August Salary Will Reduce as KRA Increase‍s Deductions

Formally employed Kenyans should brace themselves for a significant pay cut in their August salaries. 

This is after the Ministry of Housing announced the decision to backdate the housing levy to July 1st. The ministry also appointed the Kenya Revenue Authority as the sole collection agency for the housing tax. 

The housing levy is pegged at 1.5% of an employee’s gross salary. However, the August payslip will have double deductions to factor in deductions for the month of July.

"The State Department for Housing and Urban Development would like to inform the members of the public that the Affordable Housing Levy is now in effect from 1 July 2023. The levy is payable by the employee and employer at a rate of 1.5% of the employee's gross monthly salary by the employee, and 1.5% of the employee's monthly gross salary by the employer, as outlined in the Finance Act 2023. This shall be remitted by the employer not later than nine working days after the end of the month in which the payments are due.

The Cabinet Secretary, Ministry of Lands, Public Works, Housing and Urban Development has appointed the Kenya Revenue Authority (KRA) as the collection agent. KRA will issue a communication advising on the mode of collection," the ministry announced in a public notice.

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Employers will also be required to match each employee’s housing levy deductions. This means that the monthly payroll costs for employers will also significantly increase - particularly in August when there will be double contributions. 

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For example, if you have a gross salary of Ksh100,000 - you will be deducted Ksh1,500 per month. However, for the month of August, your total deductions for the housing levy will be Ksh3,000 (after backdating to July 1). In this example, your employer will also spend an extra Ksh3,000 which will be submitted to KRA as the employer’s contribution. 

The majority of July salaries were processed before the Court of Appeal lifted an order by the High Court, which had suspended the implementation of the Finance Act 2023 until a case filed by Busia Senator Okiya Omtatah is heard and determined.

The housing levy was one of the provisions of the Finance Act 2023 that had been suspended. 

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Another provision was the increase in Pay as You Earn (PAYE) tax for Kenyans with a gross salary of more than Ksh500,000. 

The taxman will also be backdating these deductions, which will see the applicable PAYE increased from 30 to 35%.

KRA, through its iTax portal, has already introduced these spaces for employers who will be making their monthly PAYE and housing levy returns forthwith. 

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