FKE faults government on the proposed finance bill

Jacqueline Mugo CEO & Executive Director Federation of Kenya Employers speaking at a press briefing on the state of the employment and labour market in Kenya. [Wilberforce Okwiri, Standard]

The Federation of Kenya Employers (FKE) has raised concerns on the proposed finance bill 2023, stating it will have significant implications for employers and businesses across the country.

They argued that these implications could result in business closures, job losses, and a slowdown in economic growth.

The employers told government that this was not a viable strategy urging it to grow the national cake, cut its own spending and find a fair balance as they cannot over tax themselves to prosperity.

Employers raised their concerns over the approach the government has taken to increase the tax base and generate more tax revenues to fund the bottom-up economic development plan through the newly proposed finance bill.

They claimed the finance bill 2023 creates an administrative burden for taxpayers including mandatory remittance of withholding VAT within three days, and mandatory remittance of withholding tax within 24 hours as opposed to previous remittance on the 20th day of the month following the month in which the deductions were made.

Speaking during a meeting in Kisumu County, FKE Chief Executive Officer Jacquline Mugo said the increase of the tax wedge on labor (VAT 16 per cent, PAYE 35 per cent, NSSF 6 per cent Housing 3 per cent, NHIF 2.75 per cent, NITA) and the proposed higher education financing model will result in a reduction in disposable income for businesses.

This she said may affect business operations as businesses struggle to remain profitable and competitive.

“It is becoming a crime to earn a decent living in Kenya. The proposed bill also suggests the introduction of a 1 per cent turnover tax on all businesses with a turnover of less than Sh5 million,” explained Ms Mugo.

“This will increase the tax burden on small businesses, which may have a negative impact on their growth and development.”

The CEO said the bill also includes changes to the tax treatment of certain employee benefits such as pension and medical insurance among others which will cause employers to review their financial strategies and salary structures and make necessary adjustments to ensure compliance with the new rules and mitigate the impact of this tax.

"This may have a great effect on employees take home pay and ultimately result in some job losses. As a result, we will have very demoralized employees, yet an employer is investing heavily in them,” she noted.

“This bill will impoverish Kenyans, leaving the worker with no income to grow capital for investment.”

Ms Mugo argued that the proposed increase of excise duty will lead to an influx of cheap counterfeit imports into the country, hampering the growth of our local manufacturers.

The employer’s federation further noted that the system changes and proposed penalties for non-compliance with the various provisions of the finance bill are quite punitive to the already overburdened employers.

"We recommend public participation and engagement of all stakeholders to find a common ground on realistic penalties," she said.

Employers continue to bear the brunt of their tough economic environment as they continue to witness businesses in Kenya struggle with many of them either closing shop or on the verge of closing shop due to the current tax environment.”

Ms Mugo yesterday revealed that an increase in business operating costs, recently led to a shrink in the formal wage employment opportunities as only 333,502 jobs were created in Q4 of 2022, a decline from 444,046 jobs created in Q3 as reported in the KNBS labor force survey.

She argued that this trend is likely to continue if the government does not provide a stable, predictable and less costly operating environment.

"The government needs to give adequate time for businesses to adjust their budgets before policies are introduced in the labor sector," she added.

As the voice of employers, we urge the government to consider the impact of the proposed tax hikes on employers, employees and our nation as a whole.”