Treasury Cabinet Secretary John Mbadi has introduced a proposal to make contributions to the Social Health Insurance Fund (SHIF) and the Affordable Housing Levy deductible allowances, potentially allowing Kenyans to keep more of their earnings.

Mbadi's plan would enable workers to deduct these contributions from their gross salaries before taxation, leading to higher take-home pay. This proposal, included in the 2024 Tax Laws (Amendment) Bill, replaces the current 15 percent tax relief system on these deductions.

The Treasury explained in a preview of the bill: "The proposed amendments to the Income Tax Act would allow deductions on contributions to the Social Health Insurance Fund (SHIF), the Affordable Housing Levy, and post-retirement medical funds up to Ksh15,000."

Calculations suggest that these changes could reduce monthly taxes for employees, with those earning Ksh50,000 saving about Ksh318, Ksh100,000 earners saving Ksh637, and workers with salaries of Ksh500,000 saving Ksh3,187.

This amendment would repeal the 15 percent tax relief on SHIF and Affordable Housing contributions, instead deducting these fees from gross income, thus reducing the tax burden. Many see it as a relief for Kenyans grappling with shrinking payslips due to increased deductions under President William Ruto's administration, which introduced the Affordable Housing Fund and adjusted NHIF deductions to the new SHIF structure.

Despite the proposed changes, many Kenyans remain concerned about dwindling take-home pay. The rollout of SHIF deductions in October, following delays and public opposition, has added a significant burden, with employees earning between Ksh100,000 and Ksh1 million contributing between Ksh1,050 and Ksh25,800 monthly, making it the largest payroll deduction after income tax.

Additional deductions include contributions to the National Social Security Fund (NSSF), which increased from Ksh200 to a maximum of Ksh2,160, and a 1.5 percent housing charge on gross salary implemented last year. Combined, these deductions have significantly reduced disposable income for many workers.

There are rising concerns that these deductions could push net pay below one-third of gross earnings for some Kenyans, potentially conflicting with the Employment Act, which limits total deductions to no more than two-thirds of an employee’s compensation.