Employment Tax
Summary
The Social Health Insurance Act (“SHI,” “the Act”), the Digital Health Act (“DHA”), and the Primary Health Care Act (“PHCA”) were assented into law on 19 October 2023 and were meant to come into operation on 22 November 2023, repealing the National Hospital Insurance Fund (NHIF) Act. These Acts established the Social Health Authority (“SHA,” “the Authority”) as part of the government’s efforts to enhance health coverage for all Kenyan residents. Following the enactment, the Social Health Insurance Regulations were gazetted on 8 March 2024, mandating all residents in Kenya to register with the SHA by 30 June 2024, with the contributions set to commence on 1 July 2024.
The new Acts have since faced challenges including implementation postponement and court cases due to underlying legislation. Specifically, on 12th July 2024 the High Court of Kenya declared the Acts unconstitutional due to the violation of constitutional provisions for lack of public participation. However, the Court of Appeal on 20 September 2024 allowed the government of Kenya to proceed with implementation of SHIF pending the full hearing and determination of the appeal case which challenges the validity and constitutionality of the three health statutes.
Subsequently, the Ministry of Health issued Public Legal Notice No.146 of 2024, in which the government published the tariffs for health services. Therefore, all employers are required to register with the Social Health Authority (SHA) and begin making contributions to the SHIF. Further, employers are mandated to register their employees with the Authority.
The detail
Contributions
Under the SHA the contributions will be as follows:
The contribution rate of 2.75% of gross salary without any cap is a material increase from the NHIF rates where the highest contribution was KES 1,700 for those earning KES 100,000 and above.
Who should register for SHIF?
Kenyan citizens and non-citizens who are ordinarily resident in Kenya are required to register with the Authority as contributing members of the fund.
Compliance framework
Effective October 2024, all employers are required to deduct 2.75% from each employee’s monthly gross salary and remit this amount to the SHA by the 9th of month following the payroll month. Additionally, a late payment penalty of 2% of any unpaid contribution applies to any person who fails to make payments by the due date.
Further, any employer who, without lawful excuse, fails to pay to the Social Health Insurance Fund within the stipulated time or makes unauthorized deductions from the employees will be liable for a fine not exceeding KES 2 million or imprisonment for a term not exceeding three years, or both.
Implications on Employers and Employees
The contribution to SHIF unlike the repealed NHIF adopts a proportionality structure where members will make contributions proportionate to their income without a capping on the maximum contribution. This will significantly reduce take-home pay for employees and means higher employment costs for employers, particularly where tax equalization is in place.
Conclusion
The Court of Appeal pronouncement therefore gives SHIF a temporary live as the stay orders are to remain in force until a final case determination and judgement. In the meantime, employers should put in place compliance mechanisms with the SHI Act by reviewing their payroll processes and consulting with tax professionals. Taking these steps will help ensure smooth implementation of the changes and keep compliance costs low.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Andrew Ondieki
Director
Mercy Migwi
Senior Associate
Ruth Mayenga
Associate
Further information on Vialto Partners can be found here: www.vialtopartners.com
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