Employed Kenyans are facing heavy deductions from their August salaries as the government backdates collection of new taxes that had been put on hold by the High Court.
The Court of Appeal on Friday last week allowed the implementation of the Finance Act 2023 and the Kenya Revenue Authority (KRA) has moved with speed to backdate these taxes to July 1 when the Act was initially supposed to take effect, dealing a major blow to both employees and employers.
Taxpayers will not only pay the new taxes for the month og August, but also those that they ought to have paid last month.
On Thursday, August 3, the State Department of Housing issued a notice indicating the commencement of collection of the housing tax, with July 1 as the effective date of implementation.
Employees and employers will therefore pay the levy— which is charged at 1.5 per cent of the employee’s gross pay marched by a similar contribution from the employer—for July and August.
Employers will have nine working days after the end of the month to remit the tax to KRA or face harsh penalties.
“The State Department for Housing and Urban Development would like to inform members of the public that the affordable housing levy is now in effect from July 1, 2023,” read the department’s notice.
High-income earners have also been dealt a blow after the taxman backdated the new higher income tax rates on their earnings to July 1. The Act has pay-as-you-earn at 32.5 per cent for individuals with salaries of between Sh500,000 and Sh800,000 monthly. Those who earn more than Sh800,000 per month will pay 35 per cent.
Backdating of the deductions means that iTax portals of employed Kenyans now reflect an underpayment for July and the same should be recovered by KRA before the close of the current financial year on June 30, 2024.
“These changes have also been effected on the unified payroll return with effect from July 1, 2023. Kindly advise taxpayers to download the latest P10 return from their profiles,” KRA said yesterday.
Businesses have also been hit as KRA has backdated the turnover tax payable by businesses whose annual turnover is between Sh1 million and Sh25 million. The Act has raised the turnover tax from 1 per cent to 3 per cent.
A bench of three judges of the High Court appointed to hear the case against the Finance Act 2023 will sit next week to give parties directions on the hearing of the matter. Justices David Majanja, Christine Meoli and Lawrence Mugambi directed the parties to appear before them on August 7.
President William Ruto told Cabinet Secretaries this week: “The animation which characterised national and parliamentary debate over Finance Act had more to do with the absence of a consistent culture of promise-keeping in our politics …Some Kenyans are suspicious that we are implementing revenue measures without any intention to deliver any public services at all.”
Parents will suffer even more as they will have to take their children back to school on the reduced pay as schools are set to reopen on August 28 after closing on August 12.
The short break means parents will be on their toes, racing against time to buy school uniforms, books, stationery and other supplies for their children at a time prices of many of the items have increased.
Already, parents with children in secondary schools are paying higher school fees this year after the government removed the Sh8,500 Covid-19 subsidy that had helped reduce the burden on parents.
Currently, learners in county and sub-county boarding secondary schools are paying Sh40,535 per year, up from Sh35,000, while those in national and extra-county schools are paying Sh53,554, up from Sh45,054.
However, some schools have raised their school fees citing higher costs of buying food, paying for utilities and other commodities.
Parents of students who sat their Kenya Certificate of Secondary Education exams last year are also set to fill the pinch after the government withdrew automatic sponsorship for qualified students to join universities.
The government this week opened the newly-created Higher Education Financing Portal through which students have one month to apply for government funding ahead of joining universities and technical and vocational education and training institutions next month.
In the new funding model, learners considered vulnerable and extremely poor will be granted more financial support through scholarships and less through loans, while those that come from less needy backgrounds will receive more support in the form of loans and less through scholarships.
This means that the parents of students who miss out on government funding or who do not receive enough funding will have to dig deeper into their pockets to finance their education.
“I am therefore, directing vice-chancellors and principals to ensure that admission letters are released by August 2, 2023. This will enable students to apply for loans and bursaries from August 3, 2023 to midnight of August 27, 2023,” Education Cabinet Secretary Ezekiel Machogu said on Monday.
Amid all these struggles, banks and other non-bank lenders have increased interests on their loans. This will hit many individuals and firms hard at a time they are relying on quick loans to pay emergency household bills and run operations, respectively.
The Central Bank of Kenya last month raised the Central Bank Rate to 10.5 per cent up from 9.5 per cent to tame inflation. Many lenders have since gone on to increase interest rates on not only their new Kenyan shilling denominated loans but also existing loans.
Further, some banks have also started implementing risk-based lending that sees riskier borrowers who are considered to have a higher probability of defaulting slapped with higher rates compared to less risky customers.
Equity Bank, for instance, increased its base lending rate from 12.5 per cent to 14.69 per cent on July 10, pushing interest rates levied on customers with a higher risk profile to as much as 20.19 per cent based on its risk-based pricing model.
Customers at Standard Chartered Bank Kenya face interest rates as high as 16.5 per cent after the lender changed its base lending rate to 10.5 per cent from 10 per cent, effective from August 5.
Even as needs and wants continue to pile up, the rising cost of living is placing an ever greater burden on the shrinking incomes of workers. The cost of living is higher than it was in the same period last year by 7.3 per cent, according to the Kenya National Bureau of Statistics (KNBS).
The increase has been driven by a significant increase in the cost of food, fuel, electricity, transport and other items, which is squeezing households whose incomes have not risen in tandem.
For instance, the cost of transport rose by 13 per cent in July compared to the same period last year, while the cost of food and non-alcoholic beverages went up by 8.6 per cent during the same period. Meanwhile, the housing, water, electricity and gas index rose by 7.8 per cent.
“The transport index went up by 3.5 per cent between June 2023 and July 2023, mainly due to increase in prices of petrol and diesel which rose by 6.9 per cent and 7.4 per cent, respectively. During the same period, fares for some public transport routes went up (by 16.7 per cent),” said KNBS.
Nearly a million government workers are waiting anxiously to see whether the government will increase their August pay after it failed to do so last month as had been anticipated.
Civil servants had been hoping the pay rise would help absorb the shock of the new taxes and higher statutory deductions, but State sources indicated that the government was banking on a court nod allowing implementation of the Finance Act 2023 before effecting any pay increase.
The last review of the pay for public servants was done in the financial year 2017/18, which led to a 16.96 per cent jump in the public wage bill to Sh784.526 billion up from Sh670.762 billion.
