The taxman is worried about the future growth in payroll taxes following continued layoffs in the private sector and a freeze in new employment by the government.
The Treasury has set a Sh1.549 trillion tax target for the Kenya Revenue Authority (KRA) this year, up from Sh1.376 trillion last year.
Companies in various sectors, led by banking, have resorted to job cuts to contain costs in recent months and protect their profit margins. This has hurt Pay As You Earn (PAYE) revenue, which grew by 7.9 per cent to Sh336.6 billion in fiscal year ended June 30.
“The depressed performance (is) partly attributed to expanded tax relief granted in January 2017 through widening of tax bands. This measure alone cost the exchequer approximately Sh2.5 billion in FY 2016/17,” Commissioner-general John Njiraini said.
“Other factors leading to weak PAYE performance include wage and employment freezes in the public sector and layoffs in key private sectors including the banking sector.”
Thousands of banking staff have lost jobs since 2015 as lenders resorted to investing in technology to enhance operational efficiencies in the wake of rising bad debt and rate cap last year.
Top-tier Standard Chartered Bank, which is set to close four outlets at end of the month and Barclays (seven from October) are some of the lenders that are scaling down brick-and-motor operations, joining smaller ones like Bank of Africa which is closing 12 outlets.
Others like include KCB #ticker:KCB which has targeted about 500, Equity Group #ticker:EQTY (400), StanChart (300), Family Bank (250), Sidian (108), First Community (106) and NIC #ticker:NIC (32) have or are in the process of sending home staff in retrenchment plans.
The wave of scaling down operations has also hit the debt-laden retail services sector where Nakumatt, Tuskys and Uchumi supermarkets have shut some of their stores since last year, while manufacturing firms like Sameer Africa have also closed down plants.
Corporate tax in the 2016/17 financial year, however grew by 18.2 per cent to Sh180.2 billion, the strongest growth in four years, with banking registering a 20.1 per cent rise.
KRA is required to collect Sh184 billion more this fiscal year over Sh1.365 trillion last year to meet the target.