Workers got a benefit of Sh6.13 billion in lower payroll taxes after the pay-as-you-earn (PAYE) bands were expanded and the minimum taxable income raised.
The Kenya Revenue Authority (KRA) says the policy measure, which was enforced for the second year running in January 2018, reduced the payroll tax base for the year ended June 2019.
The Treasury expanded the PAYE tax bands by 10 percent in January 2018, which raised effective tax-free income threshold from Sh12,260 to Sh13,486 per month.
This followed a similar increase a year earlier, largely benefiting those in the bottom of the income pyramid such as security guards, waiters, messengers and cooks.
The policy also raised workers’ monthly personal relief (MPR) from Sh1,280 to Sh1,408. The changes resulted in savings of between Sh365 and Sh1, 274 per month depending on salary.
“Tax policy, driven by the impact of the widening of tax bands, reduced the revenue base by Sh6.125 billion cumulatively,” KRA commissioner-general James Mburu said in reference to revenue performance for 2018-19 financial year.
This translated to tax savings of about one percent or less for workers with monthly gross pay of more than Sh50,000, meaning the tax savings were largely eroded by annual inflation which averaged 7.2 percent in 12 months through June 2019.
The first band is taxed at a rate of 10 percent, rising in a series to terminate at the maximum of 30 percent on the highest band, which currently starts from Sh42,781.
Official statistics show some 69,093 out of 2.656 million workers in 2017 were on a gross monthly pay of Sh15,000.
KRA data shows PAYE collections rose 7.9 percent in the fiscal year through June 2019, indicating some Sh378.33 billion were netted compared with Sh350.631 billion a year earlier.
This was slowest growth in three years, pointing to sluggish growth in new jobs and near stagnant salaries.
Payroll taxes in the year ended June 2017 stood at Sh305.16 billion, while Sh280.83 billion and Sh279.80 billion were collected in the fiscal year 2015-16 and 2014-15, respectively.
Kenya has struggled to create modern decent job opportunities for her largely skilled youthful population in the last five years despite the economy expanding by more than five percent on average.