Employees would cry more than the bereaved if what government is proposing is anything to go by.
Sources have intimidated to safinews.co.ke that, National Treasury and Planning is proposing to get rid of tax relief from all salaried workers
This means that, September or October payslips for salaried workers could shrink further if a Treasury proposal to end relief on pay-as-you-earn (PAYE) taxes is approved.
The Prof Njuguna Ndung’u lead Ministry intends to evaluate the current tax reliefs on employment earnings in order to maximize collections under its recently released medium-term revenue
“Though the tax incentives provide governments with a policy tool to influence taxpayers’ behaviour, they come at a cost in terms of forgone tax revenue. In addition, tax incentives increase the complexity of the tax system and reduce its effectiveness as an instrument to promote equity.
Economics have shown that incentives may not necessarily be effective in influencing the taxpayer’s behaviour,” the Treasury said.
Salaried workers currently enjoy upto two different types of tax relief through PAYE, including a Sh2,400 monthly personal relief for all residents that lessens the tax burden on the taxpayer
Salary employees who have paid insurance premiums for life, health, or education policies for themselves, spouses, or children are also eligible for a 15 percent tax break, up to a maximum of Sh60,000 per year.
The education and health policy must however have a maturity of at least 10 years to qualify for the tax relief.
Additionally, from January last year, contributions to the National Hospital Insurance Fund (NHIF) were qualified for insurance relief
Treasury’s proposal to axe either or all of the tax reliefs has however puzzled tax experts who reckon the move would only further impact the disposable income of households who are already adjusting to the recently introduced housing levy at 1.5 percent of gross salaries and higher deductions to the National Social Security Fund.
“How you tax households is very important as it has the ripple effect on purchasing power. This would affect the revenues and profitability of companies and ultimately GDP. The economy is run by salaried workers whom I call the middle class,” Francis Kamau, a Partner and Tax Leader at Ernst & Young said.
The National Treasury has nevertheless outlined mitigation measures for the elimination of the tax reliefs including setting a new PAYE tax band at zero percent