Retirees aged 65 and above will start getting reduced pay if the lawmakers approve Treasury's proposal to remove the tax exemptions they enjoy.
Treasury secretary Ukur Yatani wants monthly or lump sum pension paid to senior citizens subjected to applicable income taxes through the proposed changes in the Finance Bill 2020.
Mr Yatani has reintroduced the proposal in the Bill after it was voted out by lawmakers in the Tax Amendment Act which was passed in April to cushion businesses and workers from Covid-19 shocks.
If the MPs approve the changes, earnings by the retirees will be subjected to a minimum tax of 10 percent for monthly payments of up to Sh33,333, or Sh400,000 a year, and a maximum of 25 percent for those earning more than Sh100,000 a month or Sh1.2 million a year.
"The National Treasury is re-engineering and upgrading the pensions system in order to clear all pension payment backlog by the end of the calendar this management system that will guarantee smooth transition of retirees from a monthly salary cheque a monthly pension payment," Mr Yatani said
The senior citizens are seen as a vulnerable group in the fight against coronavirus partly because of low immunity.
Pension payments in the public sector have continued to pile pressure on taxpayers despite a knee-jerk policy decision nine years ago to raise the retirement age in public service from 55 to 60.
Part of the pension build-up has been blamed on the Treasury’s failure to implement reforms, including starting the long-delayed contributory pension scheme.