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The Finance Bill 2025, recently unveiled by the Kenyan government, introduces significant changes to Pay As You Earn (PAYE) deductions, placing a new onus on employers. A key directive mandates that all employers must now diligently apply all applicable tax reliefs when calculating PAYE for their employees. This shift aims to ensure greater accuracy and fairness in income taxation, but it also presents new compliance challenges for businesses.

Understanding the Change: Why the Shift to Full Relief Application?

Previously, there was some ambiguity regarding the extent to which employers were required to apply tax reliefs. The Finance Bill 2025 clarifies this, requiring employers to incorporate all eligible reliefs, such as those for mortgage interest, dependents, and education expenses, into their PAYE calculations. The government's rationale behind this move is to minimize discrepancies and ensure employees are paying the correct amount of tax, ultimately leading to increased revenue collection.

Impact on Employers: Compliance and Record-Keeping

This new regulation has significant implications for Kenyan employers. They now need to have robust systems in place to accurately track and apply all relevant tax reliefs for each employee. This may necessitate updating payroll software, training HR personnel, and implementing stricter record-keeping procedures. Failure to comply could result in penalties and legal repercussions.

Employee Benefits: Potential for Reduced PAYE

For employees, the Finance Bill 2025 could potentially lead to lower PAYE deductions, provided they are claiming all eligible tax reliefs. It's crucial for employees to understand the various reliefs available to them and ensure their employers are applying them correctly. This includes providing the necessary documentation to support their claims.

Key Tax Reliefs to Consider:

• Mortgage Interest Relief: A portion of mortgage interest paid can be claimed as a tax relief, reducing taxable income.
• Dependant Relief: Taxpayers can claim relief for their dependents, such as children or elderly parents, who rely on them financially.
• Education Relief: Expenses incurred on education, for oneself or dependents, may be eligible for relief.
• Medical Expenses Relief: Certain medical expenses can be claimed, subject to specific limits and conditions.

Navigating the Finance Bill 2025: Expert Advice is Key

The Finance Bill 2025 is a complex piece of legislation, and employers and employees alike should seek professional advice to ensure full compliance. Consulting with tax advisors or accountants can help navigate the intricacies of the new PAYE rules and maximize the benefits available.

Looking Ahead: The Future of PAYE in Kenya

The Kenyan government's commitment to reforming the tax system is evident in the Finance Bill 2025. While the changes may present initial challenges, they are ultimately aimed at creating a more efficient and equitable tax system. Staying informed and adapting to these changes will be crucial for both employers and employees in the years to come.