NAIROBI, KENYA: Treasury secretary Henry Rotich announced a new taxation schedule on incomes, which is expected to put more money in the pockets of Kenyans, specifically the least paid.
But the impact of the proposals of widening the tax bands effective in January 2017 has not been well-understood.
The plans, the second time in as many years, are informed by a need to enable individuals cope with the steady rise in the cost of basic commodities, mainly food. A breakdown on the anticipated savings, however, does not translate to much, to the disappointment of many.
Members of the National Assembly already debated the amendments, which were part of the Finance Bill that was tabled by House majority leader Adan Duale.
The proposed tax relief will come to effect in January next year, but might not be worth looking forward to considering that they offer only a tiny relief that is below Sh1000 even of the highest income earners.
“This measure will to a large extent increase the take-home income of a majority of low-income earners, “Rotich said in the last budget speech. He also promised that bonuses, overtime and retirement benefits for the low income earners would not be taxed.
Individuals with a higher salary will get a bigger relief, in nominal terms, but the reprieve is an insignificant proportion of the take-home earnings. It might sound baffling the rich get a bigger tax break from measures intended to help the poorer in the society.
At the monthly salary of Sh1.12 million that Rotich earns inclusive of allowances, the proposed tax measures translates to savings of Sh986-just enough to pay for four tots of high-end whisky.
A worker who is paid a salary of Sh13, 000 can look forward to tax savings worth Sh95 a month as their pay will not be taxable. It could, however, be easier for the poorer worker to notice the resultant modest pay rise, albeit being smaller, than Rotich would. Monthly personal relief which is extended to every salaried worker regardless of the level of pay will also be increased by a tenth from Sh1,280 to Sh1,408.
So how is it that relief meant for the poorer end up benefitting the richer even more?
Irrespective of the size of a worker’s salary, taxation for income is pegged on a schedule that ensures people who earn more pay higher taxes. Different income brackets are taxed differently, meaning that highly-paid workers have a bigger portion of their earnings subjected to higher taxation rate. Conversely, lower income earners have more of their salaries taxed at easier rates. Widening the tax bands means a bigger proportion of the overall incomes fall in the lower brackets.
According to Rotich, the minimum taxable income would be raised from Sh11,135 to Sh13,486.
But his calculations presented in his budget speech to the National Assembly were not necessarily accurate.