Kenyans Disappointed as KRA Denies Tax Relief on New SHIF Contributions

The Kenya Revenue Authority (KRA) has dampened the expectations of many Kenyans who were anticipating higher net paychecks following the implementation of the Social Health Insurance Fund (SHIF) deductions.

This comes after the Treasury Ministry proposed that contributions to the SHIF and Affordable Housing Fund be deducted before calculating taxable income, potentially increasing take-home pay. However, KRA has clarified that the proposed tax relief does not apply to SHIF contributions. According to the Income Tax Act, insurance relief is limited to contributions made to the now-repealed National Hospital Insurance Fund (NHIF), which allows for a 15% deduction. Unfortunately, this relief does not extend to the SHIF under the current law.

While the Tax Laws (Amendment) Bill, 2024, proposes changes to allow SHIF contributions to be deducted from taxable income, until this bill becomes law, Kenyans will not benefit from the relief. The SHIF, which officially rolled out on October 1, 2024, requires employers to deduct 2.75% of employees' gross salaries for the fund. The new deductions have been met with criticism from Kenyans who are already facing economic challenges as they feel that the additional deductions are further straining their financial situations.

"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 said.

Despite the backlash, the Social Health Authority (SHA) has emphasized the importance of the SHIF in providing comprehensive healthcare coverage for all Kenyans, with the fund aiming to improve healthcare services and reduce the financial burden on individuals seeking medical treatment. In October, the Social Health Authority designated six major financial institutions as the official collection points for employer contributions to the new Social Health Insurance Fund (SHIF). The institutions included Kenya Commercial Bank (KCB), Sidian Bank, Co-operative Bank, Equity Bank, Absa and Diamond Trust Bank (DTB).

This decision was made in consultation with employers, who preferred to use the banks they already utilize for other services. Alongside this development, the government has implemented a broader overhaul of its payment infrastructure. Last year, president Ruto ordered the closure of non-designated government payment platforms, leading to the integration of all public services onto the centralized e-Citizen platform.