New PAYE rates apply to all benefits and emoluments earned in April

As the deadline for filing of April Pay as You Earn (PAYE) returns nears, the Kenya Revenue Authority (KRA) would like to remind all employers that the new PAYE rates shall apply as stipulated in the Tax Laws (Amendment) Act 2020 which took effect on 25th April, 2020.

KRA has noted that there has been misinterpretation of facts on the application of the new rates by a section of the public. Despite the Income Tax provisions contained in the Tax Laws (Amendment) Act 2020 coming into effect on 25th April, 2020, and wishes to clarify that the new PAYE rates apply to all benefits and emoluments earned from the first day of April 2020.

Notably, PAYE is a monthly tax which is accounted for on a calendar month basis. Contrary to some positions published in the media, the new rates will not apply retrospectively and will therefore not be applicable to emoluments earned from January to March 2020.

KRA understands that there are employers who had already processed their April payrolls by the time the new provisions took effect. In regard to such situations, employers have two options to ensure that they comply with the new provisions. The first option is to revise their payrolls to take into account the new tax rates and refund taxes over deducted to staff in case they have not yet remitted the deducted PAYE to KRA.

The second option applies to employers who had already deducted and remitted PAYE to KRA using the old rates. Such employers are required to recover the over deducted tax from the PAYE payable to KRA in the month of May to refund their staff.

Further, please be advised that there will be no challenge in filing the returns for year of income 2020 as the necessary system enhancements have been done to facilitate accurate self-assessment. The only difference will be in the monthly tax relief which has now been revised from the previous Sh1, 408 to Sh2, 400. The former monthly ISO 9001:2015 CERTIFIED PUBLIC relief will apply for January to March salaries while the latter will apply from April onwards. Employers are advised to adjust this accordingly in the 2020 P9 forms.

Taxpayers in the annual income tax regimes like corporate entities whose financial year ends in December will compute their taxes for the year using the respective new tax rates. On the other hand, corporate bodies whose financial year ends in March will apply the old tax rates.