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UPDATED: Empolyers in limbo over pay cuts as pre-covid tax rates return

It reiterated that decision to revert to pre Covid salaries arrangement is between employers and employees.

In Summary
  • FKE said that employers are also not in a capacity to do away with pay cuts but insisted that such decisions will be made at the individual enterprise
  • On 25 March, President Uhuru Kenyatta announced several tax measures to maintain liquidity in the economy
FKE Executive Director Jacqueline Mugo addresses the press at the end of FKE's 61st Annual General Meeting at Waajiri House, Nairobi on 29 July, 2020
FKE Executive Director Jacqueline Mugo addresses the press at the end of FKE's 61st Annual General Meeting at Waajiri House, Nairobi on 29 July, 2020
Image: WILFRED NYANGARESI

Employers have contested the government's decision to revert to pre-Covid-19 tax rates, terming the move as premature. 

The Federation of Kenya Employers (FKE) told the Star that it had asked the Government maintains the tax break for individuals and enterprises until such a time when the economy has weathered down the challenges of Covid-19.

The employers' lobby said members are still reeling from Covid-19 economic shocks and that the tax burden will overwhelm them. 

''It should be noted that the decision to effect pay cuts was based on the financial implication Covid-19 has had on enterprise cashflows and revenue and not on taxes,'' FKE executive director Jacqueline Mugo said. 

According to Mugo, the survey conducted by the federation to establish the effect of Covid -19  on enterprises revealed that enterprises have had a challenge in finance and cashflows, operations and supply chains, this situation is yet to improve.

The federation said that employers are also not in a capacity to do away with pay cuts but insisted that such decisions will be made at the individual enterprise level between the company management and workers. 

FKE added that its members will continue with measures to take measures that will protect enterprises and jobs including requesting employees to take pay cuts, unpaid leave and freeze on salary increment. 

''We are committed to maintaining our employees who are majorly breadwinners for their families. The resumption of full corporate and PAYE rates will scuttle this effort,'' FKE said. 

On 25 March, President Uhuru Kenyatta announced several tax measures to maintain liquidity in the economy and cushion households from the vagaries of Covid-19 which so the government announces strict movement restrictions. 

It for instance proposed  100 per cent tax relief to persons earning a gross monthly income of up to Sh24,000 and reduction of the highest personal income tax rate by five per cent from 30 to 25 per cent. 

It also slashed the Corporate Income Tax by five to 25 per cent.

However, National Treasury Cabinet Secretary Ukur Yatani last week announced that taxes cut during the start of the pandemic will revert to normal from January 1.

The government will continue to cushion the low-income earners, by retaining 100 per cent tax relief for those earning monthly incomes of Sh24,000 and below.

The Kenya Association of Manufacturers (KAM) has also petitioned Treasury to stay the order suspending pre Covid tax relief.

The federation is worried that the high tax regime will pile pressure on available limited financial resources, forcing members home.

About 1.72 million workers lost jobs in three months to June when Kenya imposed a coronavirus-induced lockdown that led to layoffs and pay cuts.

Data from the Kenya National Bureau of Statistics (KNBS) shows the number of people in employment fell to 15.87 million between April and end of June compared to 17.59 million in the previous quarter.