President William Ruto’s push to raise more revenue and cut borrowing is risking to reduce further the take-home pay of formal sector workers in the taxman’s books.
The new government, alarmed by the national debt that is approaching the maximum allowed limit of Sh10 trillion, amid election promises requiring billions of shillings to fulfill, is once again pushing to slice the cake of workers.
However, workers are resisting all attempts to have them cough up more in taxes. The workers through their unions say unless the cost of living is brought down the new tax plan will be an extra burden.
President Ruto, who last week said Kenya was living beyond its means, is moving too far too fast in implementing numerous legislation that will hit the pockets of already strained workers.
The push to increase contributions to the National Hospital Insurance Fund (NHIF) and National Social Security Fund (NSSF) presents just a sneak peek into how much more workers will be expected to part with to fund Hustler’s dream.
The additional contributions look set to hit the few workers captured in the Kenya Revenue Authority (KRA) system, while leaving out millions of Kenyans that have fashioned themselves as the informal sector to stay under the taxman’s radar.
Kenya, with over 22 million registered voters and over 30 million using mobile money to move billions of shillings, only has about 2.7 million Kenyans captured in KRA’s pay as you earn (PAYE) register.
The huge difference has seen KRA, which is now being tasked to collect Sh3 trillion in the year starting June 2023, push further the few taxpayers in its books to the edge in bid to hit the target.
Many workers, squeezed by the rising cost of living and State deductions, are now making consumption loans a permanent feature in their lives.
Currently, a worker in formal employment is deducted between Sh250 and Sh1,700 monthly for NHIF and pays Sh200 for NSSF.
This is in addition to the PAYE, which allows the State to take Sh1 for every Sh10 earned up to the first Sh24,000, Sh1 for every Sh4 on the next Sh8,332 and Sh1 for every Sh3 on amounts above Sh32,332.
This means total deductions for a person with Sh50,000 salary is Sh8,683 or 17.4 per cent while that earning Sh100,000 surrenders Sh24,892 or 24.9 per cent.
Workers with Sh150,000 gross pay gives the State Sh39,108 or 26.1 per cent of the pay as one with Sh250,000 parts with 69,108 or 27.6 per cent.
The pain hits Sh84,108 or 28 per cent and Sh144,108 or 28.8 per cent for those earning Sh300,000 and Sh500,000, respectively.
Ogden Nash, the late American poet, summarised this in his One From One Leaves Two poem.
“The more you pay, the more they need. The more you earn, the less you keep. And now I lay me down to sleep. I pray the Lord my soul to take, if the tax collector hasn’t got it before I wake.”
This, in an economy where Kenya National Bureau of Statistics data showed just 79,909 or 2.9 per cent of PAYE contributing workers in KRA register were earning above Sh100,000 by end of last year.
More than 46 per cent of workers captured in KRA register were on a gross pay below Sh30,000.
The low incomes have seen only 2.65 per cent of Kenya’s 66.3 million bank accounts hold more than Sh100,000 in their bank accounts last year, according to the Central Bank of Kenya data.
This reflects Kenya’s growing income inequality and the struggle to save in a population that is many times just a hospital bill away from plunging into poverty.
And now Ruto’s proposals are just about to cut the take-home pay for a worker that is already battling consumption debts, rising cost of living and increasingly demanding jobs.
The State recently republished proposed regulations that will see people earning Sh100,00 and above start paying 1.7 per cent towards NHIF. This will see the NHIF contributions of Sh1,700 on Sh100,000 salary, Sh2,550 for Sh150,000 salary and Sh3,400 on a Sh200,000 salary, for instance.
NHIF is yet to indicate if the proposed rise in contributions will see members enjoy increased cover.
Details of Ruto’s proposal on NSSF are still scanty but point at six per cent of the salary.
It is not clear if this six per cent will be split between employers and employees or it is for workers and a similar amount made by employees as is in the stalled sections of the NSSF Act 2013.
If workers are to contribute six per cent, this will, for instance, mean Sh3,000, Sh6,000 and Sh9,000 for those earning Sh50,000, Sh100,000 and Sh150,000 respectively.
NSSF, which has struggled to pay a return above what private pension schemes do is also battling high expenses, which equalled 44.6 per cent of Sh14.6 billion received as members contributions in the financial year 2020/21.
Then there is another attempt to increase land rates, in a move that looks set to hit the few middle class people who have succeeded to move from rented houses to their own roofs.
Taxes, levies and inflation are moving at the speed of a sprinter in race, yet never stopping.
But salaries are running like a marathoner; sometimes slowing to sip water and sometimes dropping out never to finish the race.
The gap between these two speeds is a problem for the workers. Yet employers, the ones who are supposed to ensure salaries keep up with the cost of living, have their own share of challenges.
Official data shows workers’ real wage earnings—a measure of income after accounting for the cost of goods and services people buy—has never posted an annual growth of more than 3.2 per cent in the eight years to 2021.
Ken Gichinga, chief economist at Mentoria Economics, says salaries need to grow but they can only do so when businesses are doing well.
“You pay statutory obligations but still the road outside your house has potholes, schools are underfunded and hospitals have no drugs. This has created trust deficit and a resentment towards more state deductions,” says Gichinga.