Teachers’ payslips are set to shrink further if a proposal by the National Treasury to eliminate reliefs on Pay-As-You-Earn (PAYE) tax is implemented.
The Treasury in its recently published medium-term revenue strategy plans to review the current tax reliefs on earnings from employment to maximize collections.
This has sparked a lot of controversy among teachers who recently got their salaries reviewed upwards courtesy of the 2021-2025 CBA review agreement.
“Tax incentives provide governments with a policy tool to influence taxpayers’ behaviour but 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. Studies have shown that incentives may not necessarily be effective in influencing the taxpayer’s behaviour,” the Treasury said.
Currently, teachers just like any other salaried workers enjoy two types of tax reliefs on PAYE, including a Ksh2,400 monthly personal relief for all resident individuals which is meant to ease the tax burden on taxpayers.
Consequently, those who have paid insurance premiums for life, health or education policies for themselves, spouses or children enjoy a relief of 15 per cent paid up to a maximum of Ksh60,000 per year.
Additionally, from January last year, contributions to the National Hospital Insurance Fund (NHIF) were qualified for insurance relief.
The Treasury’s proposal to axe either or all tax reliefs is feared to further impact the disposable teachers’ payslip thanks to the recently introduced 1.5 per cent housing levy of gross salaries
The National Treasury has nevertheless outlined mitigation measures for the elimination of the tax reliefs including setting a new PAYE tax band at zero per cent.
“With the removal of personal relief, the low-income tax earners will be cushioned in line with the adjusted tax bands by creating a zero-rate tax band.” The Treasury said.
By Vostine Ratemo
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