KRA Clarifies No Tax Relief on New SHIF Contributions Under Current Law

• Nov 08, 2024

The Kenya Revenue Authority (KRA) has clarified that contributions to the Social Health Insurance Fund (SHIF), part of the new Social Health Authority (SHA), are not eligible for the 15% tax relief that previously applied to the National Hospital Insurance Fund (NHIF) contributions. This clarification follows public inquiries about whether tax relief on health insurance contributions would carry over from NHIF to SHIF, as mandated under the recent health insurance reforms.

The tax relief previously applied to NHIF contributions under the Income Tax Act, but KRA stated that the relief does not currently extend to SHIF contributions. The Tax Laws (Amendment) Bill, 2024, is expected to address this issue by proposing changes to make SHIF contributions deductible against taxable income. Until these legislative amendments pass, Kenyans contributing to SHIF will not receive the tax benefits they had under the NHIF scheme.

In an interview with TUKO.co.ke, Patrick Kuria, a tax partner at PKF, emphasized that the transition from NHIF to SHIF did not include provisions for the same tax relief, which remains a gap in the current tax laws. “The insurance relief only applies to the defunct NHIF as per existing tax laws,” Kuria explained, adding that any application of insurance relief to SHIF contributions would require new legal provisions. He further noted that Kenyans would only begin receiving relief once the amendment bill is passed into law, allowing SHIF contributions to qualify.

SHA, the new authority responsible for overseeing SHIF, has indicated that it believes SHIF contributions should qualify for insurance relief, but it has deferred the final decision to KRA. "In our view, SHIF contributors should qualify for insurance relief," SHA stated, advising the public to follow KRA’s official guidelines on tax treatment.

Under the SHIF system, employed Kenyans contribute 2.75% of their monthly gross income. For example, a worker earning KSh 100,000 would pay KSh 2,750 monthly or KSh 33,000 per year, while someone with a gross salary of KSh 35,000 would contribute KSh 963 monthly. This new rate marks a substantial increase compared to NHIF’s previous maximum premium of KSh 1,700 for high-income earners, with the lowest NHIF rate set at KSh 150.

KRA’s stance on SHIF tax relief has sparked widespread interest, particularly among workers who now face higher health insurance deductions but no immediate tax relief. The outcome of the proposed amendment bill will be essential for Kenyans looking for potential tax breaks on their healthcare contributions.