Proposed Tax-Free Per Diem Changes for High-Income Earners in Finance Bill, 2024

The Finance Bill, 2024 is set to bring significant changes to the taxation of per diems for employees earning a monthly income of Sh40,000 and above. The proposed amendment aims to exempt per diems up to five percent of an employee’s gross monthly salary, benefiting high earners such as chief executive officers and senior public officials.

Currently, the tax exemption on per diem is capped at Sh2,000 per day, favoring low earners. However, the new amendment will allow employees with higher salaries to enjoy tax-free per diems based on a percentage of their monthly earnings.

Senior public officials, who often receive substantial per diems for domestic and foreign travels, will see a reduction in their tax exposure with the increased exemption limit. For example, a government official with a gross monthly salary of Sh924,000 traveling to Singapore could be entitled to a per diem of Sh46,200.

The proposed changes also extend to other employee benefits, such as tax exemptions on reimbursements for official duties and fringe benefits like staff loans and food allowances. If passed, the Finance Bill, 2024 will provide relief for workers facing increased statutory deductions and offer more tax benefits for higher-income earners.

Overall, the amendments in the Finance Bill, 2024 aim to streamline tax regulations related to employee benefits and per diems, providing a clearer framework for taxation and potentially reducing tax burdens for certain groups of workers.