KRA Shuts Down Hopes for Higher Take-Home Pay After SHIF Deductions

The Kenya Revenue Authority (KRA) has squashed any hopes for Kenyans to take home a higher net pay after the Social Health Insurance Fund (SHIF) deductions.
In an official statement, KRA sought to clarify a previous proposal by the Treasury Ministry that had suggested that the SHIF and  Affordable Housing contributions be deducted before arriving at the taxable income of an employee.
Treasury CS John Mbadi had proposed that the deductibles be made from workers’ gross salaries before taxation to arrive at higher take-home pay for Kenyans.
“The Bill proposes to amend the Income Tax Act to provide that the following amounts shall be allowable deductions in the computation of taxable income of individuals: contributions to the Social Health Insurance Fund (SHIF),” the Treasury stated in a preview of the proposed Tax Laws (Amendment) Bill, 2024.

Treasury Cabinet Secretary John Mbadi addressing members at a previous parliamentary committee meeting.

Parliament of Kenya

Well, KRA has revealed that this insurance relief does not apply to deductions made towards the SHIF according to Section 31 of the Income Tax Act on Insurance. Section 31 of the Income Tax Act provides for personal tax relief, which includes contributions to health insurance schemes. As of January 2022, amendments to this section allow taxpayers to claim relief for contributions made to the National Hospital Insurance Fund (NHIF). 
This amendment extends to both health insurance policies that begin on or after January 1, 2007, and contributions to the NHIF, which qualify for tax relief.  For employees, this relief is capped at a maximum of Ksh255 per month, which is 15 per cent of the NHIF contribution amount of Ksh1,700. 
“The relief as currently provided under the income tax does not apply to contributions made to the SHIF  under the Social Health Insurance Act”, KRA clarified in the notice.
According to KRA, the relief that the Treasury CS was proposing applied to the NHIF deductions which were replaced by the SHA which officially rolled out on October 1, 2024.
“The relief as provided refers to the NHIF under the National Health Insurance Fund Act, which was repealed by the Social Health Insurance Act,” KRA clarified.
KRA has however acknowledged the Tax Laws (Amendment) Bill, 2024 has proposed an amendment to the law to provide for the deduction of the SHIF contributions against taxable income.
In the new contributions, SHA directed all employers be deducted a monthly statutory deduction contribution to the Social Health Insurance Fund at a rate of 2.75 per cent of the gross salary or wage of the household by 9th of each month.
According to SHA gross salary or wage for a household whose income is derived from salaried employment includes basic salary and allowances paid to an employee on a regular basis as a salary or a wage.
Following this clarification, Kenyans who had hoped to save some coins despite the contributions will have to shelve these hopes a little bit longer. Kenyans have decried tough economic times, especially with the SHIF deductions continuing to shrink their pay slips.

A photo of the Social Health Authority (SHA) headquarters.

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