By Perminus Wainaina
Is House Allowance Taxable In Kenya? What You Must Know Now
Do you offer house allowances to your employees? What does the employment ACT 2007 say regarding this?
According to the section 31 of the Employment ACT, as an employer, you are required at all times to provide reasonable housing accommodation for your employees either at your company premises or somewhere close to that place.
If you are not in a position to provide accommodation, then the ACT states that you can pay the employee a certain amount of allowance, as rent, in addition to his/her salary to help him/her get a good house elsewhere.
This is what is called the house allowance.
Thereby, is this house allowance taxable in Kenya?
The Kenya Revenue Authority holds that, all allowances you pay to your employees, may it be Entertainment allowance, Sitting allowance, Special Duty allowance, Medical allowance or Transport allowance are all subject to tax.
With this in mind, that amount of money you give your employees as house allowance is considered as either a gain or a profit of employment. It is hence taxable as part of the employees income.
Please note that for many years in Kenya, the house allowance has been calculated as 15% of the employee’s basic salary.
So for example, if your employee earns KSH 50,000 per month, then the house allowance is supposed to be around KSH 7,500 per month.
However, there has been recent arguments that 15% of an average Kenyan salary is not enough to get one a recent house in Kenya today.
However, nothing much has been concluded on this so the employment ACT still remains the main decision maker.
Now you have a clear understanding that the house allowance you give to your employee is treated as any other allowance and the employment ACT 2007 meaning it is taxable as part of the employees income.
Ensure that you remain informed on labor law advice to ensure that you are not working against the law as an employer. Click here to find out more about other labor laws in Kenya.
Perminus Wainaina is the Managing Partner – Corporate Staffing Services Ltd. For HR Consultancy email pwainaina (at) www.corporatestaffing.co.ke.
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