Kenya's tax environment has changed significantly in 2025, following updates introduced through the Tax Laws (Amendment) Act, 2024 and the Tax Procedures (Amendment) Act, 2024. These reforms are designed to improve tax compliance, boost savings, and shift how employers handle payroll and statutory deductions.
Here’s a simple breakdown of the key changes and what they mean for your business:
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Higher Pension Deduction Limits
What changed: Tax-deductible pension contributions increased from KES 240,000 to KES 360,000 per year.
What it means: You can contribute more to your employees’ retirement savings tax-free.
Action: Update your payroll to match the new limit and confirm your pension plan is registered with RBA. -
SHIF Replaces NHIF
What changed: The Social Health Insurance Fund (SHIF) replaces NHIF starting October 1, 2024.
Rate: 2.75% of gross salary (minimum KES 300, no upper limit).
Action: Deduct and remit SHIF monthly alongside PAYE. -
Affordable Housing Levy
What changed: Employers and employees both contribute 1.5% of the gross salary.
Action: Ensure the accurate deduction and remittance every month. -
Post-Retirement Medical Fund Contributions
What changed: Up to KES 15,000 per month is now tax-deductible.
Action: If your company contributes to such a fund, update your payroll settings. -
Non-Cash Benefits Threshold Raised
What changed: The tax-free limit for non-cash benefits increased from KES 36,000 to KES 60,000 annually.
Meals provided at work are tax-free up to KES 5,000 per month.
Action: You can offer more benefits without increasing your tax liability. -
Gratuity Payments to Retirement Schemes
What changed: Employer gratuity payments up to KES 360,000 annually to registered schemes are now tax-free.
Action: Structure end-of-service benefits to take advantage of this. -
Removed Tax Reliefs
What changed: Previous tax reliefs for Affordable Housing Levy and Post-Retirement Medical Funds have been repealed.
Action: Adjust net pay calculations accordingly. -
Revised NSSF Rates
What changed: New contributions based on two tiers:
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Tier I: 6% of first KES 8,000 (KES 480 max)
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Tier II: 6% of salary between KES 8,000 and KES 72,000 (KES 3,840 max)
Action: Make sure your payroll system handles these correctly.
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Extended Tax Amnesty
Deadline: Until June 30, 2025, for principal taxes due before Dec 31, 2023.
Action: Take advantage to clear any outstanding obligations without penalties or interest. -
Increased Penalties for Non-Compliance
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Late Filing: 25% of tax due or KES 10,000 (whichever is higher)
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Late Payment: 5% penalty plus 1% monthly interest
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Missed Deductions/Remittance: 25% of the tax or KES 10,000 (whichever is higher)
Action: Automate your payroll system to avoid costly mistakes.
Stay Ahead with FaidiHR
Navigating tax changes can be time-consuming and risky if done manually. FaidiHR simplifies payroll and tax compliance for Kenyan employers with automated calculations, timely updates, and expert support.
Email: sales@faidihr.com
Phone: +(254) 702 339 699
Let us help you stay compliant and stress-free. Contact us today!