Jobs, salary freeze cut payroll taxes growth

Payroll taxes for the year ended June rose at the slowest pace in three years, pulled back by sluggish growth in new jobs and near stagnant salaries in corporate Kenya.

The Kenya Revenue Authority (KRA) says Pay-As-You-Earn (PAYE) collections in the year ended June 2019 expanded 7.9 per cent, without giving actual numbers.

This was slower compared to the 15 per cent rise in payroll tax in the year to June 2018 and nine per cent a year earlier.

Key firms have put on hold hiring of new staff in an economy that has also witnessed a string of job losses in recent months affecting nearly all sectors.

Reduced profitability in corporate Kenya, which is underlined by a record number of firms listed on the Nairobi bourse issuing profit warnings, has also hurt income tax collections.

Kenya’s economic growth slowed to 5.6 per cent in the first quarter of this year compared with the same period last year, when it was 6.5 per cent, due to dry weather which stiffled the farming sector—which contributes about a third of output.

Employees who registered for payroll taxes increased by a modest 4.5 per cent, KRA commissioner-general James Mburu says in the annual revenue statement for the financial year 2018-19.

“PAYE growth was driven by the public sector, which registered a cumulative growth of 8.9 per cent, driven by upscaling of salaries in the education sector,” Mr Mburu says, an indication of muted jobs and pay growth in the corporate sector.

Collections from PAYE, an indicator of growth in jobs in the formal sector, were estimated at Sh378.33 billion compared with Sh350.631 billion in the year through June 2018.

Some 312,060 teachers got a pay rise at the start of the year under review in July 2018 after their employer, the Teachers Service Commission (TSC), implemented the second phase of their collective bargaining agreement at an estimated cost of Sh18 billion.

Growth in PAYE was slower than domestic value-added tax and excise duty, which grew 12.3 per cent each, as well as customs which rose 11.8 per cent compared to a year earlier.

Payroll taxes, however, expanded at a higher pace than corporation taxes, which climbed a modest 5.5 per cent, a pointer of reduced profitability in the private sector.

The Kenya Private Sector Alliance (Kepsa) said in April companies were yet to recover from a “tough economic environment” touched off by legal caps on interest rates in September 2016, followed by a biting drought later that year and a bruising presidential election contest a year later.

A considerable number of companies, Kepsa’s head of head of policy research analysis and public-private dialogue Victor Ogalo had said, have since 2016 put on hold new investments and hiring of new employees.

More than 15 of the 62 companies listed on the NSE reported net income drops by at least 25 per cent last year compared with 2017.