PAYE taxes drop Sh52bn as firms cut pay, employees

March 15, 2021

Payroll taxes contracted by Sh52.65 billion in the six months to December last year as employers turned to pay cuts even as other firms send their employees home.

The taxman managed to collect Sh152.62 billion in Pay As You Earn between July and December 2020 compared with Sh205.27 billion a year earlier, a report by the National Treasury shows.

The 25.65 per cent drop in PAYE receipts — which is the first drop in over a decade — pushed the collections from monthly workers’ pay to the lowest levels since Sh144.07 billion in a similar period ended December 2016.

In a bid to cushion workers from the effects of Covid-19 in April 2020 the government announced reduction of Personal Income Tax top rate (PAYE) from 30 per cent to 25 per cent while also extending 100 per cent tax relief to workers earning up to KSh24,000 per month.

The tax relief has since been reset to the pre-Covid levels except for Kenyans earning a maximum of Sh24,000.

More than 1.7 million Kenyans lost jobs in the first four months of coronavirus pandemic with millions of others working under a reduced pay.

In his speech to the country on fresh coronavirus containment measures for the next two months last Friday, President Uhuru Kenyatta said the economy posted a marginal 0.6 per cent growth in 2020 against a projected 6.7 per cent growth, underscoring the vast damage that Covid-19 has inflicted on the economy.

Kenya has lost 1,913 people to Covid-19 out of over 110,000 cases a year since the first case was recorded in the country.

According to the International Monetary Fund , however, Kenya’s Gross Domestic Product is projected to grow at 4.7 per cent in 2021 and 6.1 per cent in 2022 on the back of eventual rebound in economic activity as effects of the COVID-19 pandemic diminishes following the resumption of business activities in the country.

The growth will be fueled by recovery in local economic activity as well as expectations of a vaccine-powered strengthening of the economy later in the year, which may outweigh the drag on near-term momentum as infection cases continue to persist.

Kenya has rollout out Covid-19 vaccination program after receiving 1.02 million doses of the AstraZeneca-Oxford Covid-19 vaccine on March 3. The country has since received a donation of 100,000 doses of the same vaccine from the government of India.