The Tax Laws (Amendment) Act, 2024 took effect on 27 December 2024 and changed how two statutory deductions are treated for income tax. If you are an employee or run payroll, the change affects every payslip.

What changed

Before the change:

  • The Affordable Housing Levy was not deductible, but employees could claim a relief of 15% of the levy, limited to KES 9,000 a month.
  • SHIF contributions were not deductible and were intended to qualify for insurance relief.

From 27 December 2024:

  • Both the Housing Levy (1.5% of gross pay) and SHIF (2.75%) are deducted from pay before PAYE is worked out, so they reduce taxable pay.
  • The relief on the levy ended, because a deduction replaces it.
  • SHIF no longer earns insurance relief, for the same reason.

KRA confirmed that the new deductions apply to PAYE computation from the December 2024 payroll.

Why it helps taxpayers

A deduction lowers the amount taxed, and the saving is at your marginal rate. A relief is limited to 15% of the amount. For someone in the 30% band, a deduction saves 30 cents on each shilling, double the relief.

An example

Take a salary of KES 100,000. The Housing Levy is KES 1,500 and SHIF is KES 2,750, a total of KES 4,250.

  • Old treatment: relief of 15% of the levy, KES 225, reduces PAYE.
  • New treatment: taxable pay falls by KES 4,250, which at the 30% band saves about KES 1,275 in PAYE.

The net effect is a modest increase in take-home pay. Check yours in the PAYE calculator, which uses the current rules, and the Housing Levy calculator and SHIF calculator for each deduction.

What payroll must do

  1. Deduct the Housing Levy, SHIF and NSSF from gross pay first.
  2. Work out PAYE on what is left.
  3. Stop applying the 15% levy relief and the SHIF relief.

The monthly payroll workbook has a Rates sheet with a setting for whether each deduction is deducted before PAYE, so you can see the rule. The payslip generator workbook shows each line.

If your payslip was wrong

If your employer kept the old treatment after December 2024, your PAYE was too high. Ask for a corrected payslip and a refund, or claim the difference in your annual return; see filing your employment return with a P9 and how to spot mistakes on your payslip.

Read more

The effect on PAYE is in how PAYE is calculated. Each deduction has its own guide: the Affordable Housing Levy explained, SHIF contributions explained and SHIF replaced NHIF: what changed.

Questions people ask

Does this apply to me if I am self-employed? SHIF and the Housing Levy for the self-employed work differently, because there is no employer deducting them, so ask KRA how your contributions are treated in your return.

Will my employer correct past months? If the old treatment continued after 27 December 2024, you can ask for a refund through payroll or claim it in your annual return, keeping your payslips as evidence.

What about NSSF? NSSF has been deductible for a long time, within the pension limit; see pension contributions and tax relief for employees.

Where can I check my own payslip? Compare it with the PAYE calculator and the guide to reading your payslip line by line.

Rules are set by the Income Tax Act as amended. Confirm the current position with KRA.