KRA Clarifies Insurance Relief Does Not Cover SHIF Contributions

The Kenya Revenue Authority (KRA) has clarified that insurance relief does not apply to contributions made to the Social Health Insurance Fund (SHIF), following the recent implementation of the Social Health Insurance Act.

In a statement, KRA’s Commissioner for Domestic Taxes explained that under the Income Tax Act, insurance relief is limited to health policies that started after January 1, 2007, and contributions to the now-repealed National Health Insurance Fund (NHIF).

“The relief as provided refers to the NHIF under the National Health Insurance Fund Act, which was repealed by the Social Health Insurance Act. The relief as currently provided under the Income Tax Act does not apply to contributions made to the SHIF under the Social Health Insurance Act,” the statement reads.

The authority also noted that the Tax Laws (Amendment) Bill, 2024, proposes an update to allow deductions for SHIF contributions against taxable income.

The amendment aims to provide employees with tax benefits on SHIF contributions, now deducted from payroll at a rate of 2.75 percent of gross salary.

Starting in October 2024, employees with salaries between Ksh100,000 and Ksh1 million are contributing between Ksh1,050 and Ksh25,800 monthly to SHIF, now one of the highest deductions after income tax.

This change has replaced NHIF contributions and is remitted to the Social Health Authority (SHA).

The National Treasury has proposed that SHIF and Housing Levy deductions be made before income tax to ease the tax burden on employees, potentially increasing their take-home pay.

If the amendment passes, it will replace the existing 15 percent tax relief applied to the Housing Levy since March and the previous NHIF.