News FlashesJuly 18, 2023

CRS News Flash 14 July 2023 – KENYA – Finance Act, 2023 suspended

It is important that employers note the following:

Kenya Finance Act, 2023 suspension
Justice Mugure Thande of the Kenyan High Court has turned down a request to overturn orders suspending the Finance Act 2023 on 10 July 2023, and instead submitted the matter to Chief Justice Martha Koome, who will appoint a three-judge bench to rule on the Act’s validity.

The Busia Senator, Okiya Omtatah, filed a lawsuit in court and the High Court temporarily halted the implementation of the Finance Act, 2023. The court was supposed to issue a substantive decision on 10 July 2023 that might have put an end to the suspension, but the Finance Act 2023 will continue to be postponed until the High Court makes a ruling.

Changes published in the Kenya Finance Act, 2023
The Finance Bill, 2023 was tabled before the National Assembly on 4 May 2023 for consideration and enactment into the Finance Act.

In addition, on 15 June 2023, the Budget Statement was delivered by the Cabinet Secretary for the National Treasury and Economic Planning, Prof Njuguna Ndung’u.

On 26 June 2023 the Finance Act 2023 was assented to by the President.

Amendments that were meant to take effect on 1 July 2023:

Mileage rate for employee travelling allowances
The Act amended Section 5(2) of the Income Tax Act by limiting the tax-free mileage allowance for employees to the rates approved by the Automobile Association (AA) of Kenya.

The implication is that if an employee is paid a travelling allowance with mileage rates above those prescribed by the AA, the employee will have to pay or account for tax for the amounts in excess of the AA rates.

Increased pay as you earn (PAYE)
Currently, all employment income above Ksh 388,000 is subject to PAYE at the rate of 30%. The Act introduced new tax brackets for all income up to Ksh 6 million at 32.5% and income above Ksh 9.6 million at 35%, as the Government seeks to boost tax revenues.

Additional taxable employment benefits
Club entrance and subscription fees allowed against the employer’s income will be taxable on the employee.

Income of a married woman or wife
The Finance Act, 2023 has deleted section 15(7) (e) (iii), which provided that the gains or profits derived from the wife’s employment income are considered a separate source of income.
Through the deletion of Section 45 of the ITA, the income of a married woman living with her husband is no longer deemed to be income of the husband for the husband’s income tax purposes.

Shares under employee share ownership plans
For shares fully listed on any security exchange in Kenya, the market value of shares under employee share ownership plans will be determined based on the fair market value on the date the option was exercised by the employee. Prior to the Finance Act, 2023, the value was determined based on the date the shares were granted by the employer.

For shares not fully listed, the market value will be determined based on the price which the shares might reasonably be expected to fetch on sale in the open market when the option is exercised. Prior to the Act, the market value was determined based on the amount agreed with the commissioner before the grant of the options.

Amendments to the Employment Act:
Affordable housing levy

Through the Budget Statement, a proposal was also made to amend the Employment Act, 2007 by introducing an affordable housing levy to provide for a monthly levy payable by the employer and employee at 1.5% per month of an employee’s salary. This means that the contribution will be reduced from the proposed 3.0% to 1.5%.


The Finance Act, 2023 confirmed the amendment. The monthly levy payable by the employer and employee will be:

·        For the employee: 1.5% of the employee’s gross monthly salary;

·        For the employer: 1.5% of the employee’s gross monthly salary.


This reduced amount will now be collected as a tax by the Kenya Revenue Authority (KRA), alongside other levies.


An employer must remit the payments due not later than nine working days after the end of the month in which the payments are due.


Under the amendment, contributors will no longer have the option of a refund. Previously, individuals who were unable to secure housing within the stipulated timeframe were entitled to have their contributions refunded with added interest.

Amendments meant to take effect on 1 January 2024:

Post-retirement medical fund relief

A resident individual contributing to a post-retirement medical fund shall be entitled to a post-retirement medical fund relief equivalent to the lower of 15% of the contribution or Ksh 60,000 per annum.


Investment income from a post-retirement medical fund relief will be exempt from income tax, whether or not the fund is part of a retirement benefits scheme.

Taxation of shares issued in lieu of cash emoluments by start-ups

Taxation of benefit of shares issued by a start-up to its employees in lieu of cash emolument will be deferred and taxed within thirty days of the earlier of:

·        The expiry of five years from the end of the year of the award of the shares;

·        The disposal of the shares by the employee; or

·        The date the employee ceases to be an employee of the eligible start-up.


The value of the taxable benefit will be the fair market value of the shares at the earlier of the occurrence of the events contemplated above. Where the fair market value is not available, the commissioner will determine the value of the shares based on the last issued financial statements.


The subsection will not apply to any cash emoluments or other benefits in kind offered to an employee by virtue of the employment.


For the purpose of this section, the term “eligible start-up” means a business incorporated in Kenya that:

·        Has an annual turnover of not more than Ksh 100 million;

·        Does not carry on management, professional or training business;

·        Has not been formed as a result of splitting or restructuring of an existing entity; and

Has been in existence for a period of not more than five years

To view the Finance Act, 2023, follow the link.


Contact our legislation team on if you require any additional information.
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