Govt earnings from PAYE drop by Ksh.62.1 billion in one year

The government has shed Ksh.62.1 billion in earnings from pay as you earn (PAYE) with the tax head being the worst hit by COVID-19 related disruptions.

According to a new analysis on revenue collection across twelve months to the end of January by the National Treasury, the plunge in PAYE earnings represents 44.5 per cent of the total plunge in ordinary revenues for the period, tabulated at Ksh.139.5 billion.

Total PAYE collections the period amounted to Ksh.179.2 billion from a higher Ksh.241.3 billion at the same time last year.

The slump in collections from salaried Kenyans is largely attributable to deductions on the rate of VAT in April last year where the maximum rate of PAYE fell to 25 from 30 per cent as part of government cushioning measures.

Nevertheless, the sharp decline in the revenues could be attributed to widespread job cuts and pay cuts witnessed across 2020 as firms adopted cash-preservation stances to cushion against the pandemic’s turbulence.

Job losses were however already on the rise at the onset of the pandemic with the number of employed Kenyans falling by nearly 250,000 between January and March last year.

The trend in joblessness was exacerbated in between April and June when Kenya’s unemployment rate doubled to 10.4 per cent after 1.7 million Kenyans were rendered jobless in three months.

Unemployment was however on the decline in the third quarter of the year with an estimated 1.8 million jobs being added to the economy according to data from the Kenya National Bureau of Statistics (KNBS).

Revenues from PAYE are expected to trend upwards this year supported in part by a resumption to economic activity, implying greater job creation and from the reversal of tax relief measures which raised the effect PAYE rate.

Moreover, Members of Parliament effected changes to PAYE bands pushing lower income Kenyans to the greater 30 per cent rate of tax which was effected on salaries at the end of January this year.

At the same time, government revenues from value added tax (VAT) fell by Ksh.29.9 billion over the 12 months period following a lower rate of VAT at 14 per cent which has also since been reversed to 16 per cent.

Government earnings from import duty meanwhile declined by Ksh.1.9 billion while excise duty and corporate tax revenues fell by Ksh.584 million and Ksh.4 billion respectively.

Cumulatively, total revenues inclusive of Ministerial appropriations in aid (A-i-A) fell by a lower margin of Ksh.124 billion to Ksh.937 billion based on greater aid collections which rose by Ksh.15 billion to Ksh.97.2 billion in the period.

PAYE and VAT account for about half of all tax revenues according to data available from the Treasury.