Payroll taxes dip Sh37bn on Covid layoffs, salary cuts

Payroll taxes fell an estimated Sh37.13 billion in the financial year ended June 2021, reflecting the impact of Covid-induced layoffs and pay cuts on a tough labour market.

The Kenya Revenue Authority (KRA) has reported a 9.3 percent drop in Pay As You Earn (PAYE) tax receipts in the review period compared to a year earlier when the taxes amounted to Sh399.20 billion.

The taxman has blamed the drop from Sh399.20 billion to an estimated Sh362.08 billion on the impact of the pandemic on private sector jobs.

“The decline was driven by the reduction in employment emanating from measures taken by mainly private firms to reduce operating costs as a result of Covid-19 pandemic,” KRA Commissioner-General Githii Mburu said in a statement on full-year revenue performance.

“The tax head was also affected by the reduction of the top PAYE rate from 30 percent to 25 percent in the first half of the year, and a 100 percent tax relief for persons earning below Sh24,000 per month.”

Provisional revenue data shows payroll taxes fell Sh52.65 billion or 25.65 percent in the first half of the fiscal year to December 2020 to about Sh152.62 billion before recovering to a growth of 8.00 percent to nearly Sh209.46 billion in the second half.

Findings of a monthly Stanbic Bank Kenya’s Purchasing Managers Index (PMI) have suggested while private firms ended mass layoffs last October, they stepped up pay cuts and lower salary offers for returning workers and new recruits.

“The job market has not recovered,” Federation of Kenya Employers (FKE) executive director Jacqueline Mugo recently told the Business Daily via email. “For us to recover, the focus and any support should be on helping enterprises to bounce back especially in the productive and job rich sectors that have been hit by the pandemic such as manufacturing, transport, tourism and aviation. This will have a positive impact on jobs and incomes,” she said.