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NSSF, KRA tussle over pension collection fees

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NSSF headquarters in Nairobi (left) and Times Tower, KRA headquarters. FILE PHOTO | NMG

The National Social Security Fund (NSSF) is fighting plans to have the taxman collect workers’ monthly pension contributions in a row centred around commissions that the Kenya Revenue Authority (KRA) will earn for the job.

The taxman has made plans to start collecting the Sh400 monthly pension contribution per person together with tax in what could potentially lead to job losses, especially for NSSF field officers who ensure that employers deduct and remit their workers’ contributions. However, NSSF has accused KRA of seeking easy money and is against the taxman’s move to deduct workers’ contributions as commission for collecting the retirement savings on behalf of the fund.

KRA was expected to earn an agency commission of between 1.5 and two percent of the collected amount.

“We are against KRA seeking to deduct workers’ contributions as commission yet there is little value they are adding,” said a top NSSF executive who requested not to be named. “There is no new strategy. KRA is simply going for soft target of workers on payrolls and yet the fund goes to places like Kibera to get collections where KRA does not have the capacity.”

NSSF reckons the fund does not deduct its operation costs from the monthly contributions, but from investment incomes derived from dividends from firms like Safaricom, BAT Kenya and Bamburi Cement where it has stakes.

The fund is also apprehensive that the taxman could divert some of the collections to the Treasury, and put NSSF in a situation where it could miss out on investment income and face difficulties in paying retirees. The fund is basing its fears on a 2016 pilot experience from which KRA is yet to cede more than Sh24 million it collected at the time. NSSF collected Sh14 billion in the year to June 2018, which could have translated to a fee of Sh210 million for KRA.

Pilot scheme

KRA’s commissioner for domestic taxes, Elizabeth Meyo, says that the taxman will start collecting NSSF remittances for 90 companies from December under a new pilot scheme aimed at improving compliance for businesses.

“The unified payroll returns system was successfully completed in February this year before a pilot rollout in December. This will help reduce the cost of compliance, time and costs to taxpayers,” Ms Meyo said at the launch of the annual tax summit meeting.“Currently, companies are preparing three forms, one for Pay As You Earn for KRA, (another for) NSSF and (another for) NHIF. We are saying we are one government, why don’t we have one form where everything is unified?” Ms Meyo asked.

Critics argue that NSSF is wary of the implications that will follow the deal to allow KRA to collect contributions, including layoffs.

Should KRA take over the responsibility, this could also lead to the closure of offices, which costs the fund millions of shillings in leasing fees. The fund’s administrative costs in the year to June 2018 stood at Sh5.5 billion against Sh14 billion remitted by workers over the same period. This means 40 percent of members’ contributions were consumed by costs, leaving the fund with Sh240 out of every member’s monthly contribution of Sh400. This was the money NSSF had for investments and to pay retirees.

The pensioner’s administrative costs have remained above the targeted two percent of its total assets, reducing the amount of money available for investments, ultimately squeezing retirees’ returns.

The administration costs at Sh5.5 billion accounted for 2.47 percent of NSSF’s Sh222 billion assets as at June 2018. This is behind the push to allow KRA to collect the monthly contributions.

KRA said in a statement that it would channel the collections directly to NSSF accounts, easing fears that the Treasury could use part of the collections to support the Budget at a time when more than half of what the taxman collects is used to pay off government debt.

“The collections made through the unified return are directed to the specific bank accounts of NSSF and KRA,” the taxman said in a statement. “The unified return brings all payroll related contributions under one platform in order to create efficiency for the taxpayers. It harmonises the due date to 9th of the month subsequent to the payroll month to facilitate payment of payroll deductions on the same day.”

KRA reckons that it is more effective in making collections compared to NSSF, which is yet to collect more than Sh5.6 billion deducted from workers.