Inside Plan to Exempt Certain Kenyans From Paying Taxes

Section 5(2)(a) of the Income Tax Act has been amended by the Retirement Benefits Authority (RBA) to exempt regulatory authority employees from paying taxes on benefits resulting from their employer’s exempt status.

Any taxable benefit, such as leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, pension, gratuity, or subsistence, traveling entertainment, or other allowances received in connection with employment or services rendered, is subject to taxation, according to Section 5(2)(a) of the Income Tax Act.

The RBA, however, wants the statute changed to exempt workers of regulatory authorities (government agencies) from paying taxes on some perks provided by their employers, including travel allowances, bonuses, pensions, sick pay, and leave pay.

The RBA suggests that employers pay the taxes on these benefits so that workers can increase their retirement savings.

The RBA claims that this action is intended to guarantee that workers of tax-exempt organizations are encouraged to contribute to pension plans and that their benefits are shielded from depletion.

By preventing taxes from lowering pension payments, these reforms are intended to incentivize workers to increase their pension savings.

At the moment, regulatory bodies must transfer 90% of their surplus funds to the National Treasury. Since they are recognized as tax-exempt, these authorities are not required to pay taxes on their earnings.

Employees of these authorities are taxed at a rate of 30% on employer pension payments over Ksh360,000 annually, even though they are tax-exempt. They are deterred from increasing their pension plan savings as a result.

According to the RBA, income tax should be applied to the 90% excess that is sent to the National Treasury.

In this manner, the employees will only be taxed when they eventually receive their pension benefits, and the regulating bodies will be able to pay the tax for their workers.

Sacco Societies Regulatory Authority (SASRA), Tourism Regulatory Authority (TRA), Energy and Petroleum Regulatory Authority (EPRA), and Insurance Regulatory Authority (IRA) employees are examples of regulatory authority personnel.

The RBA has prepared a number of proposals, including this one, and is looking for Kenyans’ feedback before passing them in July 2025.