Salaried workers’ net pay to fall further as state pushes for higher deductions
Should all the proposed deductions come to pass, many workers will be affected as their take-home pay will take a hit.
Salaried workers’ take-home pay is set to fall further as President William Ruto's administration continues to push for higher deductions for savings, housing and health insurance amid the ever-rising cost of living.
The State will on Thursday unveil the 2023/2024 budget, which it has coupled with a raft of revenue-raising measures that promise to further weaken the bargaining power of salaries already eroded by inflation.
Government officials, including President Ruto and his deputy Rigathi Gachagua, are pushing to pass all the proposals contained in the Finance Bill, 2023 despite public outcry as they seek to raise more tax revenue and reduce borrowing.
In February, the State increased the mandatory retirement deduction from a flat rate of Sh200 to a maximum of Sh1,080, with further increases planned in the future in line with the National Social Security Fund Act 2013.
It is now eyeing a three per cent deduction from gross wages, with a maximum of Sh2,500, to fund affordable housing, which will put further pressure on the payroll. However, the National Assembly Finance and national Planning Committee has proposed to reduce the levy to 1.5 per cent.
Fund healthcare
The government has also finished gathering views on a proposal to change National Health Insurance Fund (NHIF) contributions from the current range of between Sh150 and Sh1,700 to a flat rate of 2.75 per cent of gross salary, a move that will increase deductions to fund healthcare.
The State sees an increase in premiums as a way of throwing a lifeline to the NHIF, which collected Sh78.84 billion in premiums in the financial year ended June 2022 against a target of Sh90.57 billion, and has failed to pay hospitals for services rendered.
The already implemented increase in deductions to the NSSF, in addition to the proposed contributions to health insurance and affordable housing, will mean an additional Sh1,485 deductions to Sh3,900 for a worker on Sh30,000 gross salary compared to last year. A worker on Sh100,000 gross salary who paid Sh23,968 in gross deductions last year will see deductions rise by Sh4,166 to Sh28,134, while those earning Sh200,000 will have to part with an additional Sh6,916 as deductions reach Sh60,884.
Those earning more than Sh500,00 a month will face further deductions as part of their income will be taxed at 35 per cent if the proposal to widen the tax brackets from the current maximum of 30 per cent is passed.
Data from the Kenya National Bureau of Statistics shows that only 79,909, or 2.9 per cent of workers on the Kenya Revenue Authority's (KRA) pay-as-you-earn register, were earning more than Sh100,000 as at the end of 2021. More than 46 per cent of workers captured in the KRA register were earning less than Sh30,000 gross.
The Kenya Kwanza administration believes that increased savings through the NSSF will not only help provide workers with better returns in old age, but will also provide more local funds for the government to borrow from.
74 per cent
The proposed NHIF rate of 2.75 per cent will see contributions rise by between eight per cent and 74 per cent for those earning between Sh39,999 and Sh100,000, highlighting the impact of using higher earners to subsidise those earning less.
Contributions will be even higher for those earning more than Sh100,000, with those earning Sh500,000 seeing their deductions rise eightfold to Sh13,500.
The payroll raid comes at a time when workers are already grappling with a sustained rise in the price of basic commodities such as sugar and bread, as well as the upward adjustments to school fees, transport and student meal budgets.
Inflation has remained outside the government's target range of between 2.5 and 7.5 per cent for the past 12 months, closing at eight per cent in May and setting up workers for a possible fourth consecutive year of inflation-adjusted pay cuts.
Other proposals, such as the doubling of VAT on fuel from eight per cent to 16 per cent, promise to increase transport costs, which could lead to a rise in the price of goods.
Many employers are reluctant to increase salaries for their employees given the difficult business environment, and deductions such as the increased NSSF and the proposed housing levy will also affect them.
