NAIROBI, Kenya, May 30 – Enwealth Financial Services has welcomed plans to increase the tax-free contribution limit to Sh30,000, saying it will boost retirement savings.
The proposed Finance Bill 2024, which is currently undergoing public participation, seeks to exempt taxes on contributions made by employees to registered and provident funds.
Currently, the tax only applies to contributions not exceeding Sh20,000 per month, which has been in force since 2005.
“It is our view that this is an overdue amendment that recognizes the fact that the limits set 19 years ago need to be adjusted for inflation and to reflect the fact that incomes have also changed over the past two decades,” Enwealth Financial Services CEO Simon Wafubwa said.
“We also note that this proposal aligns with the Government’s policy of encouraging Kenyans to increase their retirement savings. This proposal will likely lead to an increase in pension contributions as employees take advantage of the increased tax-free pension contribution amounts.”
Self-employed individuals saving with the National Social Security Fund will also enjoy the limit of Sh30,000.
“As mentioned above, this is a welcome change that seeks to ensure that individuals who are self-employed or who are not members of a registered pension scheme also enjoy the enhanced limits as they contribute to individual retirement funds,” Wafubwa stated.
Relief applied to medical insurance policies as well as NSSF is set to be repealed if the Finance Bill 2024 is assented into law as it is.
The relief is currently set at 15 percent of the amount of premiums paid, subject to a limit of Sh60,000.
“The Bill proposes to repeal the affordable housing relief applicable to a person saving for the purchase of a house under an approved affordable housing scheme. The relief is currently set at fifteen percent (15%) of the employee’s contribution but not exceeding KES 108,000 per annum.”
Moreover, the bill proposes to exempt from income tax the payment of pension benefits to a person upon attainment of the retirement age.
“The exemption shall also apply where a person retires early prior to attaining the retirement age due to ill health or withdraws from the fund after twenty (20) years from the date of registration as a member of the fund,” the CEO added.
This proposal will encourage saving for retirement through a registered scheme and prevent early withdrawals due to the conditions for the exemption, such as the requirement for withdrawal after twenty years from the date of registration as a member of the fund.
By Alvin Agufana
