From July onwards, your payslip will reflect the new deductions proposed by President William Ruto. These deductions include enhanced contributions to the National Health Insurance Fund (NHIF), the National Social Securities Fund (NSSF), and a three percent cut on your basic salary for the new Housing Development Fund. The changes aim to boost savings and protect the health of workers and their families. However, they will lead to a reduction in your take-home salary.
If you earn a basic salary of Sh100,000 per month, you should expect to part with at least Sh4,380 more in extra-statutory deductions. The calculations by the Business Daily show that your take-home salary, which currently averages Sh76,041, will be reduced to Sh71,661. This reduction in take-home pay will affect workers across all income groups. For example, those with a basic monthly pay of Sh20,000 will experience a reduction of Sh2,630 in their take-home salary.
The proposed changes also include a flat rate of 2.7 percent of your salary to be contributed to NHIF. Previously, salaried workers paid between Sh150 and Sh1,700 based on their monthly pay, but these rates will be phased out. The new changes will result in increased contributions for earners between Sh39,999 and Sh100,000 per month, with contributions ranging from eight percent to 74 percent. The aim is to use higher earners to subsidize those earning less and create a more equitable contribution mechanism.
Furthermore, employers will be required to match the three percent contributions towards the Housing Development Fund. Employers have already started implementing the new NSSF rates, which have increased deductions for staff earning between Sh18,000 and Sh25,000 to Sh880 per month.
Additionally, highly paid individuals earning above Sh500,000 per month will face an extra 35 percent Pay As You Earn (PAYE) on their income above that threshold. For example, someone earning Sh600,000 per month will see a deduction of Sh22,904 from their take-home salary. The majority of the foregone cash will go towards increased contributions to NHIF, with an individual earning Sh600,000 now contributing Sh16,200 compared to the previous Sh1,700.
These changes aim to generate an additional Sh350 billion in taxes in the upcoming financial year. The government plans to raise Sh2.89 trillion in the Financial Budget starting in July, with an increase in collections from income tax, including PAYE and corporate income tax.
It's important to note that the proposed changes may lead to an increase in inflationary pressure, adding to the high cost of living and potentially eroding purchasing power.