The National Treasury and counties are set for a clash over remittance of statutory deductions.
Treasury Cabinet Secretary John Mbadi proposed that the national government centralise the payment of salaries to address the problem of counties failing to remit staff deductions on time. The CS also cited other agencies supposed to deduct the contributions, including ministries, departments and agencies.
The unremitted statutory deductions include Pay As You Earn (PAYE) and National Social Security Fund contributions.
He said county governments and defunct local authorities were the biggest culprits in deducting staff benefits but failing to remit them to the Kenya Revenue Authority (KRA) and other agencies.
“My suggestion would be very radical. If these agencies cannot remit the statutory deductions, then the best thing to do is to allow the national government to centralise the payment of salaries, retain the money and pay it to where it should go,” said Mr Mbadi.
The CS explained that under the proposal, the Treasury would only remit net salaries of employees to the bank, while all statutory deductions would be retained.
“It was assumed that the paying agencies would be responsible enough to make sure that the money they deduct is also remitted. Why use part of people’s salaries to pay other bills? It does not make sense at all,” he said.
The proposal follows concerns over inordinate delay in processing and disbursing pension benefits to retired civil servants.
Senators have also raised concerns about unnecessary penalties and interest incurred by counties due to delays in remitting statutory deductions on time.
However, governors have always blamed the national government for the untimely remittances, pointing to delays in the Exchequer releases to counties as the cause of the problem.
According to the National Treasury, current reports submitted by pension schemes responsible for overseeing the retirement benefits of county employees indicate that over Sh81 billion in contributions have not been remitted. However, the Council of Governors puts the debt at Sh40.5 billion as at March 2023, having offset Sh13.26 billion.
According to data from the County Assets and Liabilities Committees, from the records of the 175 defunct local authorities as at March 2013, the county governments inherited liabilities of Sh9.97 billion.
Of this amount, Sh5 billion is owed to the Local Authorities Pensions Trust (Laptrust), Sh1.8 billion to NSSF and Sh3.8 billion to Local Authorities Provident Fund (Lapfund).
As at June 30, 2023, counties owed NSSF Sh2.7 billion, out of which Sh2 billion was accumulated penalties.
For Lapfund, the debt stood at Sh57.5 billion, of which Sh47.7 billion was accrued interest and penalties arising from late remittance of pension contributions. Laptrust is owed Sh33.7 billion.
Data from the Controller of Budget released in December 2023 showed that pending bills by state corporations, state-owned enterprises and semi-autonomous government agencies, in the form of unremitted deductions for civil servants, rose from Sh35.8 billion a year earlier to Sh78.6 billion.
The increase in unremitted statutory deductions is expected to burden not only civil servants when they retire, but also the state corporations that run on the remittances.
For KRA, for instance, the unremitted payroll taxes mean that the taxman fails to meet set targets on overall revenue but also on PAYE.
