Jobs, paycuts slash payroll collection by Sh6.4 billion

Payroll taxes fell Sh6.4 billion in the quarter ended March despite the Treasury reinstating income tax cuts, highlighting the impact of Covid-19 on layoffs and pay cuts.

The Kenya Revenue Authority (KRA) received Pay As You Earn (PAYE) taxes amounting to Sh98.97 billion in the period compared with Sh105.36 billion in the first three months of last year, the Treasury says in the quarterly budgetary review report.

The 6.06 percent drop in PAYE taxes, remitted by 9th of the following month, reflects a tough labour market which has seen firms step up salary cuts to stay afloat in an economy struggling to recover from Covid-19 knocks.

The payroll taxes continued to fall despite the Treasury roping more workers into top tax rate bracket and ending tax reliefs for those earning more than Sh24,000 a month.

The tax cuts were introduced in April last year after Kenya reported its first case of the coronavirus and aimed to shield the economy. They were reinstated in January 1.

“The Covid-19 pandemic continues to adversely impact on jobs, livelihoods and enterprise performance. The job market has not recovered,” Federation of Kenya Employers (FKE) executive director Jacqueline Mugo said.

Treasury secretary Ukur Yatani reinstated the maximum income tax rate of 30 percent for workers on January 1 after getting approval from lawmakers, ending a six-month relief where the top rate tax had been reduced to 25 percent.

The Treasury spared workers earning monthly pay of Sh24,000 whose pay remain tax-free, but compensated this by expanding the maximum payroll tax band to apply from a salary of Sh32,333 compared with Sh47,057 in the pre-Covid period.

“Many people are out of employment and enterprises are trying very hard to stay afloat. The labour market impact of the pandemic indicates the devastating effect on the informal economy,” Ms Mugo said.

Findings of a monthly Stanbic Bank Kenya’s Purchasing Managers Index (PMI) has suggested that while private firms gradually increased monthly workforce between October 2020 and March 2021, they stepped up pay cuts and lower salary offers for returning workers and new recruits.

Treasury data shows payroll taxes in nine months through March 2021 amounted to Sh251.58 billion, falling short of its target by 21.36 percent or Sh24.78 billion.