KRA Tightens Employer Rules on Tax Deductions and Reliefs Under New Finance Act

The Kenya Revenue Authority (KRA) has issued new guidance to employers, tightening compliance rules on how income tax deductions, reliefs, and exemptions are applied on employees’ salaries under the Finance Act 2025.

In a public notice dated October 2, 2025, KRA said the changes are aimed at ensuring uniform and accurate application of tax reliefs and deductions when computing employees’ income tax. The authority stated that the amendment to the Income Tax Act now “mandates employers to apply all relevant tax deductions, reliefs, and exemptions when computing income tax on employee emoluments.”

Under the new directive, employers must apply personal relief to all resident employees, as well as allow insurance, mortgage and pension deductions once the employee provides proper documentation. KRA also directed firms to factor in statutory levies such as the Affordable Housing Levy and contributions to the new Social Health Insurance Fund.

KRA emphasized that employers are required to recognize valid tax exemption certificates and ensure that Pay-As-You-Earn (PAYE) returns reflect all applicable deductions and reliefs. “Employers are advised to promptly provide their employees with all required documentation to support claims for deductions and reliefs,” the notice read in part.

The tax agency urged all employers to comply with the changes, warning that failure to do so could result in penalties or non-recognition of returns. It further encouraged employers and payroll officers to seek clarification at their nearest Tax Service Office or through KRA’s contact channels.

The new directive forms part of KRA’s wider effort to tighten payroll tax compliance and enhance transparency in employee taxation following major reforms under the Finance Act 2025