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‘Double blow’ on workers as Uhuru slash salaries

President signed the Finance Bill 2018 into law after his tax proposals

President Uhuru Kenyatta has dealt a double-blow to millions of working Kenyans by reducing their monthly salaries even as his tax measures push up the prices of basic commodities.

The President’s new tax policies will see employees’ take home salary slashed as they begin contributing 1.5 per cent of their gross pay towards the ‘National Housing Development Fund’, a project Uhuru says wants accomplished by 2022.

This contribution adds to other statutory deductions including pay-as-you-earn (PAYE), National Social Security Fund (NSSF) and National Hospital Insurance Fund (NHIF), which have significantly eaten into employees’ income.

This comes after a hike in prices of critical items including fuel, airtime, Internet data bundles and mobile money transfer services after Uhuru signed into law the Finance Bill, 2018 on Friday 21.

Dr.Samuel Nyandemo an Economics lecturer at the University of Nairobi says the President’s move has compromised the purchasing power for majority of Kenyans who are already struggling.

The Economic Specialist explains for a typical employee with a gross salary of Sh50,000, they will be left with a net salary of Sh39,637, after being deducted Sh7,332 for PAYE, Sh1,080 for NSSF, Sh1,200 for NHIF and now Sh750 for the housing kitty.

According to Kenya National Bureau of Statistics (KNBS), figures show that there are only 2.5 million people in formal employment out of about 18 million Kenyans eligible for work. Majority of them, over 60 per cent, earn between Sh20,000 and Sh49,999.

The worst thing that will follow is that employers required to match their employees’ contribution of 1.5 per cent of gross salary, not many of them will have the space to raise workers’ wages, recruit new workers or even expand their businesses.

“The official unemployment, which currently stands at 32 per cent, could rise sharply,” Dr.Nyandemo explains.

Petroleum products 
With the eight per cent value-added tax (VAT) on petroleum products, farm inputs will go up which will in turn have an effect on prices of foodstuff.
But it is those who use kerosene who will bear the brunt of Uhuru’s taxes.

Already, the price of a litre of kerosene has gone up by close to Sh11 to retail at Sh108.41 up from Sh97.70 in Nairobi, making it more expensive than diesel which will now go for Sh108.12 a litre.

Residents in Nairobi and Mombasa will suffer the most. About 47 per cent of households in Nairobi county use kerosene for cooking, followed by those in Mombasa where 43 per cent of households use the fuel.

Kerosene is also used for lighting, especially in rural areas.

But it is on financial transactions that the new taxes might have a lasting effect. For Kenyans on wage employment, a good chunk of their salary is not only used to sustain their immediate family members, but also members of their extended family.

Bank fees
Besides charging 20 per cent excise duty on mobile banking – up from 10 per cent – all other bank fees such as ATM withdrawals, depositing a banker’s cheque and over-the-counter withdrawals will attract an increased tax of 20 per cent, up from 10 per cent.
One out of three households in Kenya receives money through banks.

A 2017 study by Financial Sector Deepening, a programme established to support development of financial markets in Kenya, showed that on average a Kenyan spends between Sh3,629 and Sh13,460 annually to run a bank account, including withdrawals, money transfers and account maintenance fees.

With the new tax measures, these fees and fines will increase to between Sh3,991 and Sh14,806, a situation that might see some Kenyans revert to putting their money in the bank.

Mobile transaction
In a highly dependent society as Kenya’s, it is employees in factories and offices in major urban centres that send money back to their parents and grandparents in their rural homes for upkeep.

According to statistics by KNBS 44 per cent of households receive money through mobile money transfer services such as M-Pesa or Airtel Money.

Even money received from abroad largely comes through the mobile phone.

Yet, the Government has slapped mobile money transfer services, airtime and Internet data with an excise duty of 15 per cent, up from 10 per cent.

Dr. Nyandemo says that an increase in duty on mobile money transactions will wipe out money from circulation. “Speed of M-Pesa transactions will reduce, and this will slow down the pace of growth,” he says.

With the cost of sending money through either mobile phones or banks getting expensive, people are likely to shift to using friends and relatives to send money.

Already, one in every four households receives money through a family or friend, according to figures by KNBS.

 

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