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Economy

MPs win Sh1m monthly pay in backdoor deal

 Protesters outside the Parliament Buildings in Nairobi during a demonstration against the plan by MPs to increase their salaries last month. FILE
Protesters outside the Parliament Buildings in Nairobi during a demonstration against the plan by MPs to increase their salaries last month. FILE 

Members of Parliament will earn more than Sh1 million a month under a ceasefire deal agreed with the Salaries and Remuneration Commission (SRC) on Tuesday night. 

A tabulation of the perks and allowances agreed during the meeting chaired by Deputy President William Ruto shows that the MPs came out as the effective winners in the three-month row that has dominated public discourse since the March 4 election.

Each of the 416 Members of the National Assembly and Senate will earn at least Sh1.1 million per month, including allowances.

The legislators — 349 members of the National Assembly and 67 Senators — won critical battles in the salaries war, including unlimited committee sittings, tax-free pensions, enhanced grants to buy fuel guzzlers and a cheap mortgage offer amounting to a major pay increase through the back door.

While the Tuesday deal retained the monthly salary at Sh532,500, which is taxable at the rate of 30 per cent, it opened the door for more allowances taking their gross earnings past the one-million-shilling mark.

The MPs left the negotiation room smiling all the way to the bank after the SRC removed the cap it had placed on committee meetings to16 per month.

Restricting committee meeting to a maximum of four per week meant MPs could earn a maximum sitting allowance of Sh80,000 per month. Although this allowance will be taxed, MPs can now have as many committee sessions as they deem necessary. 

Besides, the legislators will get a top up of Sh135,255 per month for their contributory pension calculated at 31 per cent of their basic salary that will not be taxed. The new arrangement also offers the lawmakers a Sh5 million grant to buy luxury cars – which is 50 per cent higher than the 10th Parliament’s Sh3.3 million.

“I am very happy that we have reached a deal. Even though we didn’t resolve everything, dialogue is the way to go,” said SRC chairman Sarah Serem in an interview with Business Daily.

The pact comes a day after civil society groups staged a second demonstration dubbed ‘Occupy Parliament’ to protest MPs’ clamour for higher pay.

Law Society of Kenya chairman Eric Mutua said the organisation will continue with a case it filed at the High Court last week to stop the 11th parliament from arbitrarily increasing its salaries contrary to what is set by SRC.

“In order to set precedence, we will prosecute the case to the end. We are seeking to define the parameters within which Parliament can interfere with the works of independent commissions,” Mr Mutua said.

Justice David Majanja had issued orders barring any State organ from enforcing the National Assembly’s bid to nullify Gazette Notices No. 2885, 2886, 2887 and 2888 issued by the SRC on public officers’ pay.

In the new pact, lawmakers’ pay will be subject to an annual increment of eight per cent or Sh44,000 – meaning MPs will be taking home a basic pay of Sh710,000 per month by the time the House ends its term in 2017. 

MPs with additional responsibilities – leader of majority and minority and whips – are entitled to additional allowances capped at Sh150,000 per month. Opening up departmental and standing committees to unlimited sittings offers MPs a new window to rake in more earnings.

Those who chair such teams will earn Sh10,000 and their deputies Sh8,000 per session. MPs have also made their pension earnings tax free contrary to Income Tax Act’s provision that pension contributions exceeding Sh20,000 a month or Sh240,000 annually be taxed.

“Parliament will have to bear the additional cost to meet the tax payments as pension is a taxable benefit. It may be because Parliament is not a taxable organisation,” said Michael Mburugu, tax director at PKF East Africa.

Previously, the law makers had a contributory scheme into which they paid 12.6 per cent of their earnings with the Treasury contributing an additional 25.4 per cent of the MPs salaries.

The SRC had proposed that the contributory scheme be abolished in favour of a gratuity scheme equivalent to 31 per cent of annual basic pay for every year served.

Gratuity schemes are benefit schemes mostly used to send off employees engaged in short and fixed term contracts such as MPs. It is mostly used in the private sector and is based on completed working years.

Kenyan lawmakers will also smile to the bank as they collect new mileage claims that have pegged at Sh109 per kilometre for up to 750 kilometres per week. Additional travel distance will be compensated at the rate of 70 per cent or Sh76.30 per kilometre as approved by the Automobile Association of Kenya.

This gives the MPs an opportunity to earn additional Sh327,000 in monthly travel allowances. The move will benefit more legislators from far-flung areas such as Turkana, Marsabit, Moyale, Mandera and Lamu among others.

The distance from Nairobi to Lodwar, Turkana County is 700 kilometres by road, meaning lawmakers from the region will be covering at least 1,400 kilometres for a return journey. This translates to annual travel costs of at least Sh1.77 billion for the bicameral house. The mileage allowances are not taxable.

“Mileage is not taxable as it is an actual reimbursement of travel expenses incurred while discharging one’s duties,” said Mr Mburugu.

Legislators will sigh with relief after the SRC reneged on its earlier offer of giving them up to Sh7 million car loan repayable at an interest rate of three per cent per annum within five years or before end of term. 

“Based on this cost benefit analysis by the SRC, this was found to be a more viable option as opposed to government providing chauffeur-driven vehicles to all the 416 MPs,” SRC said in a statement.

The Sh5 million per MP car grant will cost tax payers a one-off expense totalling Sh2.08 billion.

MPs, however, lost a bid to have interest-free mortgages as was in the previous Parliament. Legislators who served in the 10th Parliament were given interest-free home loans of up to Sh15 million.

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