During last week’s State of the Nation address, President Uhuru Kenyatta painted a doom and gloom picture using numbers from the government’s wage bill. 50 per cent of the total revenues collected by the government, about Sh627 billion annually, ends up in the pockets of less than two per cent of the country’s total population as salaries and allowances.
In his speech, he said that the Salaries and Remuneration Commission (SRC) had prepared an interim report outlining the review of remuneration and benefits for State officers for the period 2017 to 2022.
The report recommends, amongst other measures, a rationalization of the salaries and allowances paid to senior state officers, public servants, elected officials from members of county assemblies all the way to the president.
This will culminate in a reduction in salaries and allowances for those elected in August this year.
However given what transpired before with the MPs when they were finally pushed into paying taxes, will it really? Maybe, maybe not.
So what happened with the MPs? Well, there had been a long and arduous battle of trying to bring the MPs into the tax net where the legislators, being the lawmakers, often wiggled their way out by refusing to pass laws that would include them into the tax net.
However after the 2010 Constitution was enacted and after Rev. Timothy Njoya filed a suit to compel MPs to pay taxes, the MPs threw in the towel and after some horse trading with the SRC they agreed to be taxed, but there was a catch.
The 349 members of the National Assembly and 67 Senators (excluding the Speakers of the bicameral Parliament) were to be taxed only on their basic salary.
They would continue receiving their handsome allowances, which are enumerated in the National Assembly Remuneration Act, free of taxes.
Judging from the atmosphere in Parliament when Mr Kenyatta read portion of his speech, it is expected the measure will receive push-back from the intended audience and it will not be surprising to see the SRC engaging in horse-trading again.
However, the commission should resist being strong-armed into approving a lopsided deal where the government pays the taxes on-behalf of the intended target.
This is what I mean. When negotiating for emoluments, one can either agree on a net-contract or on a gross-contract.
A gross contract is pretty straightforward. If John has a gross contract that entitles him to a gross salary of Sh500,000 for example, his employer will calculate and determine his income tax from this amount and it is from this amount that he will end up with his net salary amount in his bank account. Therefore, the total cost of employing John in his employer’s books will be the Sh500,000.
On the other hand if John has a net contract that entitles him to a net salary of Sh500,000, his employer will be required to shoulder John’s tax burden.
How? Well, the employer will be required to gross-up John’s net salary and assume that he is getting a hypothetically higher figure, say Sh700,000, such that after computing tax on this figure John ends up with Sh500,000 in his bank account.
This ultimately means that the cost of employing John in his employer’s books will be the Sh700,000.
No one likes a pay cut and it is expected that those targeted by the SRC will resist a pay cut, insist that their pay remaining the same (i.e. insist on a net salary) which means that their employer will be required to pay their taxes for them.
I am not privy to the deal that the SRC struck with MPs a few years back and neither have I seen an MP’s payslip before and after the deal, but my guess is the lawmakers managed to negotiate for themselves such a deal with the commission back then. If it happened once, who says it can’t happen again?