Kenya’s middle class is at risk under President William Ruto ’s new government plans that have burdened them with costs as their pay slips grow slimmer.
In the Finance Bill, 2023, released Thursday, the National Treasury proposes a 3 per cent deduction on the basic salary towards housing development.
“An employer shall pay to the National Housing Development Fund in respect of each employee, the employer’s contribution at 3 per cent of the employee’s monthly basic salary and the employee’s contribution at 3 per cent of the employee’s monthly basic salary,” the Bill proposes.
Both the employer's and the employee’s contributions are, however, capped at a collective Sh5,000 per month.
This is the latest proposed deduction to be introduced to the pay slip this year, after the rise of pension contributions from Sh200 to 6 per cent of an employee’s basic salary, following the passing of the National Social Security Fund (NSSF), 2013.
The President, during Labour Day celebrations this week, also indicated that effective July, contributions to the National Health Insurance Fund (NHIF) will be pegged at 2.7 per cent of an employee’s salary, which leaves all workers earning above Sh55,555 monthly paying beyond Sh1,500 for the medical cover.
Kenyans earning at least Sh500,000 monthly will also pay 35 per cent Pay as you earn (Paye) tax, up from the 30 per cent they have been paying.
This category of workers will now fork Sh175,000 income tax, up from Sh150,000 currently.
The actions and proposed actions have left the middle class, a population already burdened by demands such as school fees needs, mortgage and other self-growth but cash-demanding needs, coupled with a high cost of living that is punishing households across class divides, even more vulnerable.
Economists fault the government’s move to continue hitting the working class with more financial burdens despite the realities of the economy, arguing against the productiveness of the current tax regime.
“Sustainable growth can be achieved when a country’s tax policies are progressive and proportionate to the citizens’ ability to pay. Regressive and burdensome tax policies inhibit sustainable growth,” says Mr Ken Gichinga, chief economist at Mentoria Economics.
Mr Gichinga argues that the government’s drive doesn’t portray an administration ready to expand the tax bracket by netting more businesses and individuals who haven’t been paying taxes, but instead hammering the already burdened salaried persons.
“To ensure a wide tax bracket, there have to be deliberate attempts to support business growth and job creation. Unfortunately, the environment is not very conducive to business growth. Fuel costs will rise when VAT on fuel goes to 16 per cent. Interest rates are high, power costs are rising etcetera,” he says.
The economist’s sentiments mirror those of the University of Nairobi Economics don, Dr Samuel Nyandemo, who terms the additional deductions unfair, inconsiderate and punitive, considering most of the people within the middle class have had their salaries stagnate for a long, despite high inflation that has raided their pockets.
“More deductions now create more misery to the middle-class group, which will be more vulnerable and will find it harder to meet basic needs,” Dr Nyandemo argues.
The lecturer also observes that the new government’s actions are a diversion from its manifesto, which promised to expand the tax base as opposed to adding more burden to the few taxpayers.
“These actions also risk being counterproductive on workers and citizens at large who will be more vulnerable. Hitting salaried persons more with deductions is likely to suffocate the propensity for them to consume as they lose purchasing power. This is not good for economic development,” he says.
