The National Treasury’s proposal to increase income tax on salaries above KES 500,000 has sparked a heated debate among Kenyans. According to the Finance Bill 2023, the Treasury is proposing a 35% income tax on all monthly salaries above KES 500,000. Additionally, the Treasury is proposing a 3% deduction from all employees’ basic salaries towards a fund called the National Housing Development Fund, which will be matched by another 3% from the employer.
The proposal has been met with mixed reactions from Kenyans. While some feel that the proposal is a step in the right direction towards achieving equity in the tax system, others feel that it is a punitive measure that will discourage investment and stifle economic growth.
Proponents of the proposal argue that it is a progressive tax measure that will help redistribute wealth and reduce income inequality. They argue that high-income earners should bear a higher tax burden than low-income earners, as they have a higher capacity to pay. They also argue that the funds raised from the tax will be used to finance essential public services, such as healthcare, education, and infrastructure.
However, opponents of the proposal argue that it will discourage investment and reduce economic growth. They argue that high-income earners are often entrepreneurs and business owners who invest in their businesses and create jobs for others. By taxing them heavily, the proposal will discourage them from investing and growing their businesses, leading to a slowdown in economic growth and job creation.
The proposal to deduct 3% of all employees’ basic salaries towards the National Housing Development Fund has also received mixed reactions. While some feel that it is a positive step towards addressing the housing crisis in the country, others feel that it is an unnecessary burden on employees. The Housing deduction for employees is capped at KES 5,000, which some argue is still too high for low-income earners.
The National Treasury’s proposal to increase income tax on salaries above KES 500,000 and to deduct 3% of all employees’ basic salaries towards the National Housing Development Fund has generated mixed reactions. While some feel that it is a positive step towards achieving equity in the tax system and addressing the housing crisis, others feel that it is a punitive measure that will discourage investment and stifle economic growth. Whatever the outcome of the debate, it is clear that the proposal will have far-reaching implications for Kenya’s economy and its citizens.