As Kenya continues to reform its tax structure, the 2025 updates to PAYE (Pay-As-You-Earn) and personal taxation come with significant shifts that directly affect employees, employers, and individual taxpayers.
From higher per-diem allowances to expanded mortgage relief, here’s a breakdown of the most notable changes — and what they mean for your payslip and financial planning.
- Per-Diem Allowance Raised to KES 10,000/Day
Old limit: KES 2,000/day
New limit: KES 10,000/day
In a long-awaited move, the allowable per-diem (daily travel allowance) has been raised to KES 10,000. This change reflects the rising cost of living and travel, especially for employees sent on work assignments out of station.
✅ What this means: Employees receiving up to KES 10,000/day in per-diems will not be taxed on that amount. Anything above that may still be subject to PAYE unless it’s properly accounted for.
- Mortgage Interest Deduction Extended to Owner-Built Homes
Previously, the mortgage interest relief only applied to purchased homes through banks or mortgage providers. Now, this has been extended to homes constructed by the owner.
✅ What this means: If you’re building your own home and servicing a loan for the construction, you can now claim mortgage interest deductions — a major win for self-builders!
- Gratuity Payments Are Now Fully Tax-Exempt
According to the latest Finance Bill, gratuity payments are now 100% tax-free — across all sectors and income brackets.
✅ What this means: Upon retirement or contract completion, employees will receive their full gratuity without tax deductions, increasing their final benefits.
4. Fringe Benefits to Be Taxed at 30%
The tax rate on fringe benefits (e.g., employer-provided cars, low-interest loans, accommodation) has now been set at a flat rate of 30%.
What this means: Employers need to recalculate tax liabilities on non-cash benefits, and employees may see adjustments in their net compensation if they enjoy perks from their employer.
In conclusion, the latest PAYE and personal tax changes signal the government’s intent to modernize taxation, increase compliance, and offer more equitable deductions for working Kenyans. While some changes, like fringe benefit taxation, may increase costs, others — like tax-free gratuities and home construction deductions — aim to reduce the tax burden for many.