Civil servants are staring at a cocktail of difficulties including run-ins with the taxman and potential blocks from accessing essential government services as unremitted statutory deductions by the State double to Sh78.6 billion in the three months to September.
New data from the Controller of Budget (CoB) shows pending bills by State Corporations, State-owned enterprises and semi-autonomous government agencies, in the form of unremitted deductions, have grown from Sh35.8 billion in the same period a year earlier.
The unremitted statutory deductions which represent subtractions taken from workers earnings but are not forwarded to their respective custodians include Pay As You Earn (PAYE), deductions due to the National Hospital Insurance Fund (NHIF), the National Social Security Fund (NSSF) and pension arrears.
Unremitted deductions to NSSF rose the fastest in the quarter by 197 per cent to Sh407.3 million from Sh137 million while unremitted Sacco deductions grew by 162 per cent to Sh2.6 billion from Sh1 billion previously.
Equally, unremitted deductions to the Kenya Revenue Authority (KRA) in the form of payroll taxes rose 133.5 per cent to Sh25.3 billion. Unremitted deductions to NHIF and staff loan deductions nevertheless bucked the trend, falling by 19.3 and 17.8 per cent respectively in the quarter to Sh80.9 billion and Sh2.4 billion.
The rise in unremitted statutory deductions are expected to not only put a strain on the civil servants but also to the State Corporations which run on the remittances by salaried civil servants.
For KRA, for instance, the unremitted payroll taxes means that the taxman fails to meet set targets on not only overall revenue targets but also targets on PAYE.
In the quarter ended September 30, for instance, PAYE revenues fell shy of the quarterly target by Sh19.8 billion, a deviation which would have been more than offset were State agencies to make remittances on the payroll tax arrears.
Payroll taxes in the period amounted to Sh123 billion against a target of Sh142.9 billion albeit registering a growth of 11.4 percent from last year according to disclosures by the National Treasury.
According to the Controller of Budget, pension arrears made up the bulk of State Corporation pending bills.
“The highest percentage of State Corporations’ pending bills is for pension arrears. Further, the category of pending bills with the highest increase under State Corporations was unremitted NSSF deductions,” the COB highlighted.
Mr John Kinuthia, a Senior Program Officer at the Institute of Budget Partnership (IBP) Kenya, says the trend in unremitted deductions tells of the cash crunch in government which could deteriorate in the long-term if not arrested in the short run.
“The rise in pending bills from unremitted statutory deductions is representative of a cash flow problem. Taking a positive assumption, the arrears can be resolved if the remittances are made by the end of the financial year. However, were the arrears to accumulate over years, civil servants would be wary of their ability to access pension payments in retirement alongside services flanked by NHIF and NSSF deductions,” he said.
The surge in unremitted statutory deductions by State agencies is in the backdrop of challenges by the government to pay civil servant salaries against competing expenditure needs and debt repayments.
In March this year, the Exchequer delayed paying civil servants’ arrears, blaming an acute cash crunch and increased loan repayments which largely swelled from a weaker local currency.
“We are not getting adequate tax revenues. I can tell you, we even have trouble with salaries. We are clearing salaries with arrears. Imagine that,” he told MPs.
A seemingly bullish President Ruto has nevertheless argued that the transformation of the country is on, even as his remarks stand in contradiction to the fiscal developments.
Last Tuesday, MPs staged a walkout from the National Assembly as they protested delays in the disbursement of Sh53.3 billion for the National Government Constituency Development Fund, a further indication to the biting cash crunch in government.
Employees in the private sector are also not off the hook as private firms resort to job cuts to stay afloat in what they have termed as a challenging operating environment.
According to the Federation of Kenyan Employers Executive Director Jacqueline Mugo, three per cent of corporates have declared redundancies leading to an estimated 70,000 job losses .
