KRA tightens PAYE compliance with mandatory reliefs and exemptions
By Faith Lagat, October 2, 2025The Kenya Revenue Authority (KRA) has issued a public notice to employers, employees, and the general public on the application of income tax deductions, reliefs, and exemptions under the amended Income Tax Act, Cap 470.
The directive, issued on October 2, 2025, follows the enactment of the Finance Act, 2025, and takes immediate effect. It requires employers to ensure accurate computation of Pay As You Earn (PAYE) for employee emoluments, reflecting all tax benefits and statutory requirements.
“Public Notice: Guidance on Employer Obligations in Applying Income Tax Deductions, Reliefs and Exemptions The Kenya Revenue Authority (KRA) wishes to inform employers, employees, and the general public that the Finance Act, 2025, amended the Income Tax Act, Cap 470 (“the Act”), to mandate employers to apply all relevant tax deductions, reliefs, and exemptions when computing income tax on employee emoluments,” read the notice in part.
Guidelines for employers
In its notice, KRA outlined five key obligations that employers must observe. First, all resident employees must be granted personal relief as stipulated under the Act. Employers are also required to allow insurance relief, mortgage interest deductions, and contributions to registered pension schemes and post-retirement medical funds, provided employees declare these and furnish the necessary supporting documents within statutory limits.
“Apply personal relief to all resident employees as stipulated under the Act. Allow insurance relief, mortgage interest deductions, and contributions to registered pension schemes and post-retirement medical funds – provided these are declared by the employee and supported by the necessary documentation and fall within statutory limits.”
In addition, statutory deductions such as contributions to the Social Health Insurance Fund and the Affordable Housing Levy must be factored in during PAYE computations.
“Deduct statutory levies and contributions paid by employees, such as the Affordable Housing Levy and contributions to the Social Health Insurance Fund, in accordance with the Act.”
Exemptions and documentation
The tax agency further directed employers to apply exemptions for employees holding valid tax exemption certificates, subject to the prescribed limits. Employees, on their part, were urged to promptly submit documentation to support claims for deductions and reliefs, ensuring smooth processing of payroll obligations.
KRA stressed the importance of accuracy and timeliness in PAYE return submissions. Employers were reminded that all returns must fully capture applicable deductions, reliefs, and exemptions in line with the updated law.
“Recognise and apply tax exemptions for employees who hold valid tax exemption certificates, subject to the prescribed limits. Ensure accurate and timely submission of PAYE returns, reflecting all applicable reliefs, deductions, and exemptions. “
Employers and employees seeking clarification can visit their nearest Tax Service Office (TSO) or contact KRA.
Employees are advised to promptly provide their employers with all required documentation to support claims for deductions and reliefs, where applicable.