Parliament adopted a recommendation to spare retirees aged 65 and above and the National Social Security Fund (NSSF) from paying taxes, to protect pension earnings.
MPs on Tuesday adopted the National Planning and Finance Committee proposal to protect pensioners and their dependents at a time the coronavirus pandemic has hurt earnings.
MPs voted through acclamation and backed the recommendations by the committee chaired by Joseph Limo to protect the pensioners from the taxation Treasury Secretary Ukur Yatani had proposed.
The Treasury had in its Finance Bill 2020 proposed a tax of up to 25 percent on the monthly payment of pensioners and NSSF’s annual earnings.
The imposition of tax on NSSF income was expected to lower the annual interest that the fund pays on pension savings, ultimately offering retirees a smaller retirement pay.
The Treasury also wanted the monthly or lump sum pension paid to senior citizens to be subjected to applicable income taxes of between 10 percent and 25 percent through the Finance Bill, which will become law on July 1. “The proposal is not good because it will reduce the pensioners’ benefits paid by NSSF. We are saving pensioners we know that it is in the public domain that they have been crying there is a proposal to tax them,” said Mr Limo.
MPs said the Treasury proposal would have amounted to double taxation because pensioners paid taxes on their monthly earnings during their working days. “The proposal would have been double taxing them, how do we continue milking the old cow? They paid taxes during their working days. This is the time they are vulnerable…If we tax people aged 65 and above it is wrong,” said Tinderet MP Julius Melly.
Pensioners are among the most vulnerable persons in the face of the Covid-19 disease due to their low immunity. The Treasury’s proposal to tax their monthly pay had attracted sharp criticism.
In the last audited income of the NSSF, the fund indicated that it returned a net surplus of Sh25.76 billion in the year to June 2018, up 7.8 percent from Sh23.89 billion in the 2017 financial period.
Investment income, which is credited into the accounts of individual members as interest, rose by 23.8 percent from Sh14.3 billion to Sh17.7 billion in the same period.
NSSF’s earnings were from rental income from its property portfolio, dividends from investment in equities and interest from cash put in bonds and deposits.
Had this amount been subjected to tax, the NSSF would have paid the Treasury nearly Sh4.3 billion reducing its ability to pay better returns to contributors.
In the 2020/21 Budget, the Treasury had sought to remove a range of tax exemptions, including pension, in the race to make up for revenue lost due to the impact of the economic slowdown caused by the global coronavirus pandemic.
As well as a drop in tax collection caused by Covid-19, Kenya also cut corporate and personal income tax rates in April to boost demand and help firms keep workers on their payrolls.