The Kenya Revenue Authority (KRA) has been given the power to attach bank accounts of employers who fail to remit workers' contributions to pension schemes.
The National Assembly has amended the Retirement Benefits Act (RBA) to authorise the taxman to pursue defaulters on behalf of retirement schemes.
The Trustees of pension schemes will now be required to write to the RBA for approval to appoint KRA as an agent to collect unremitted contributions, interests, and penalties where an employer has failed to remit employees’ pension dues.
Once appointed, the KRA will issue a 21-day notice in writing to the defaulting employer requiring it to pay the unremitted contributions, interests, penalties and recovery costs.
“Where an employer fails to comply with the notice, the Kenya Revenue Authority shall serve such employer and the employer’s bank with an agency notice, attach the bank accounts of the defaulting employer and remit the attached funds to the Scheme within 30 days,” reads a new clause that was inserted to the RBA Act through the Finance Bill, 2021.
The changes also empower the RBA on its own motion to direct the trustees of a retirement scheme to appoint the KRA as an agent to recover the unremitted contributions, interests and penalties where the RBA feels that the trustees have failed or have not made reasonable effort to recover the contributions.
The amendment to the RBA Act will also see a defaulting employer bear the cost of the recovery of unremitted contributions.
The trustees must demonstrate that they have taken all reasonable efforts to recover unremitted contributions from a defaulting employer without any success.
“The Authority (RBA) shall either approve or reject the request in writing within twenty-one days from the date of receipt of the request,” new section 62A of the Finance Bill states.
President Uhuru Kenyatta is by law required to assent to the Finance Bill, 2021 by Wednesday, June 30.
The new law targets cash-strapped State entities, including public universities and county governments with unremitted pension deductions running into billions of shillings.
The State-linked entities risk asset seizures and bank attachments from the financial year starting Thursday, July 1 when the Finance Act comes into effect.
The new changes to the RBA law are set to unsettle the management of State corporations and semi-autonomous agencies (Sagas) who have failed to give priority to paying outstanding remittances to pension schemes.
County governments, which took up assets and liabilities from defunct Local Authorities will also be on the radar of KRA for failing to remit workers' dues to Local Authorities Pension Fund (LapFund) and Local Authorities Pension Trust (LapTrust) which are owed in excess of Sh40 billion.
A recent RBA report tabled in Parliament shows the total unremitted retirement benefit dues stood at Sh35 billion by September 2020 with public universities accounting for Sh33.25 billion.
The University of Nairobi topped the list of defaulters with Sh5.5 billion, followed by Jkuat and TUK at Sh3.5 billion each, Egerton University (Sh2 billion) and Moi University (Sh1.3 billion).
The RBA had warned the universities could lose assets such as land and homes to pension schemes on failure to clear the arrears that should not exceed six years.
Gladys Wanga, who chairs the Finance committee said there are several government institutions deducting pension and other dues from workers and not remitting.
“For us to resolve this serious problem, we have to give trustees power to collect through KRA,” Ms Wanga said while initiating the amendment that was unanimously approved by lawmakers.