Did CS Henry Rotich hoodwink workers with Sh100 relief?

National Treasury Cabinet Secretary Henry Rotich

NAIROBI: Towards the end of Henry Rotich’s budget speech two weeks ago, MPs hailed a supposedly bold proposal to offer lowly paid workers a tax relief.

He qualified the tax break as the Government’s commitment to sharing growth with every Kenyan and a directive that would cushion workers from the high cost of living.

“This good news allows us to share the good performance of the economy as widely as possible,” said the National Treasury Cabinet Secretary to approving MPs.

He also widened tax bands which raised the minimum pay for the top bracket, which is taxed at 30 per cent, from Sh38,893 to Sh42,779.

The measure raised the floor for taxation on income tax to ensure anyone earning 11,180 or less would not pay any taxes. Effectively, middle and high income earners also got a more modest reprieve.

But it was not until the Finance Bill – the law that would define the reprieve among other policy measures, was tabled last week that it became clear just how much the State had handed low income earners.

Effective January next year, a worker earning a gross salary of Sh15,000 a month will pay Sh413 in income tax, down from Sh550. It is not much money by any measure, Sh137 to be exact, the difference which would probably be just enough for one meal for a poor household.

Considering the other taxation measures including an additional Sh7.20 levy on every litre of kerosene, low income earners might actually have been left poorer.

A survey done by Business Beat has shown that the reprieve is exactly the amount consumers pay for a 2-kilo packet of wheat flour which many households use to make about 25 chapatis.

 And for a worker living in Dandora Estate and is employed in the city centre, the relief might just pay a day’s round trip bus fare but not beforeadding Sh3.

That is how small Rotich’s gift is, in his well-intended policy measure but might qualify as a prank when contrasted with recent amendments initiated by President Pombe Magufuli in Tanzania. “I promised during my campaign to reduce pay as you earn to single digit. Now I declare to reduce it from 11 per cent to 9 per cent. I know this percentage will create a gap in our revenue, but we shall see how to fill it,” Magufuli told Tanzanian workers last month on May Day.

Following the directive, poorer workers in Tanzania - East Africa’s biggest country by population and land area, are way better off while the top tax rate is, however, at the same level as Kenya at 30 per cent.

Mr Magufuli had explained the thinking in his directive, terming it ‘shameful’ that senior government officials would be earning Sh1.8 million ($18,000) a month while the poorer ones had to do with a gross pay of Sh14,000 ($140).

But the Tanzanian scenario is replicated in Kenya where top officials such as judges earn over Sh1 million excluding allowances while the minimum pay, which is hardly observed by employers, is still about Sh10,000. Millions of workers in the informal sector such as domestic staff are however still paid below the minimum wage.

Typically, reviews of taxation measures on income are informed by the rising cost of living which is measured by inflation. In the 15 years since Kenya last reviewed the income tax bands, bus fares – a daily expense for most workers, have more than doubled. A 500 gramme loaf of bread, as an example, was retailing at about Sh25.

Even after a bitterly downward review of regular bread sizes to 400 grammes, the basic commodity is now selling at Sh50 to show how much the cost of living has risen. A packet of milk is retailing at a similar price, yet the selling price at a regular kiosk was just about Sh23.

During the global financial meltdown of 2008 and 2009 alone, inflation rose above 30 per cent, driven by spikes in food and energy prices. In the process it is the poorest households that were hardest hit, yet there were no reliefs offered while the current one by Rotich could be too little too late.

A post-budget analysis compiled by business advisory firm KPMG also notes that the cost of living had jumped since 2001 when the income tax bands were last reviewed, but without a corresponding assessment on take-home pay. “Kenya has experienced an increase in the cost of living over the years. However, the graduated tax brackets for Pay As You Earn and the corresponding personal relief have remained constant since 2001,” KPMG reports.

The firm notes that the revision of the income tax bands could impact on the total revenue collections by the Kenya Revenue Authority, albeit modestly considering that the amounts in question are not very significant on the overall.

Nothing is a better indicator that Kenyans are heavily taxed than a comparison of the ordinary revenues collected by the respective countries in the region. Tanzania, for instance, has an estimated population of 55 million people but is projecting to collect Sh460 billion in the next financial year.

And in contrast with Kenya with a population of less than 44 million, KRA expects to collect Sh1.3 trillion, almost three-fold the collections in Tanzania – where President Magufuli has slashed income taxes for the lowest income earners by a quarter.

Unsurprisingly, the cost of living in Kenya is rising faster than all of its neighbours in the East African region. Rwanda reported the lowest inflation rates in 2015 at 4.5 per cent, compared to 5.1 per cent in President Magufuli’s land and 6.3 per cent in Kenya, further making a case for even bigger tax breaks for the poorest of Kenyans.

A previous survey done by the Standard revealed the ingenuity with which the urban poorest in Nairobi were making ends meet by going for ‘rejects’ including bread crumbs in the place of a proper loaf, and purchasing cracked eggs instead of whole ones – all because life had become too expensive for most poor households.

Accelerated investments in infrastructure in Kenya, coupled with massive levels of pilferage in the public sector has pushed the government to a tight corner as relates to raising resources that are primarily from taxes. To counter the impact of the slight reprieve on income taxes, Mr Rotich proposed several other new levies that are anticipated to help the KRA collect more than Sh1.3 trillion.

In the present financial year that ends next week, the revenue agency expects to collect Sh1.18 trillion – more than half from income taxes. [email protected]