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Corona law set to delay April pay for workers

Workers’ April salaries are likely to be delayed as employers juggle with the options of complying with President Uhuru Kenyatta’s proposed changes to the pay-as-you-earn (PAYE) regulations which were before Parliament this week.

Parliament on Wednesday passed the Tax Laws (Amendment) Bill 2020, which will see those earning below Sh24,000 exempted from tax as part of efforts to cushion workers from the knocks of the Covid-19 pandemic and the resultant restrictions on movement and economic activities. The Bill will only become law once it is signed by the President.

During the debate, MPs inserted new clauses while rejecting others — raising the possibility of further delays in assenting to the omnibus Bill should the President opt to disagree with the raft of changes introduced by the legislators.

The National Assembly granted the President his wish of reducing income tax, but also rejected some revenue-raising proposals such as tax on food and agricultural inputs.

MPs stopped the Treasury from imposing taxes on bread, cooking gas, milk, fishing nets, medical products, fertiliser, mosquito nets and agricultural pest control products as well as animal products.
Parliamentarians also inserted a new clause in the Bill that bars employers from sacking workers or forcing them to take pay cuts during the current or future pandemics.

With the uncertainty about Mr Kenyatta’s next action on the Bill and the time required to process it for signing, workers in both public and private sectors are now staring at delayed salaries as many employers opt to delay processing this month’s salaries in the hope of benefiting from the tax cuts and also passing on the reliefs in the reduced PAYE to their workers.

The public sector’s Integrated Payroll and Personnel Database (IPPD) has for instance been locked and processing of April salaries put on hold in anticipation that the Bill will be passed into law early enough.

Workers under the Parliamentary Service Commission, Teachers Service Commission and the disciplined forces, whose salaries normally hit bank accounts before the 20th of every month, have been told to expect delays, according to a communication shared by the core team managing the IPPD system.

“Our IPPD systems countrywide are locked. This is to advise all of you to prepare for delay in salary processing,” a notice seen by the Business Daily reads in part.

Nikhil Hira, a director at Bowmans (Coulson Harney LLP) law firm, reckons that including so many new proposals in one Bill would likely to delay its passage in case of a back and forth between the Executive and Legislature. “The wise thing should have been to just go with single proposals. Coming up with so many proposals at such a short time and in the middle of a pandemic was not a wise move,” said Mr Hira.

Kenya Revenue Authority (KRA) can only recognise tax cuts once the President assents to the Bill, meaning that any contentious clauses in the Bill has the potential of delaying these reliefs. Firms have up to the 9th of every month to remit PAYE tax to KRA for the previous month, meaning they still have a two-week window. Companies that choose to use this window with hope that Mr Kenyatta will assent to the Bill on time, are likely to delay paying salaries.

Mr Hira had earlier advised that the potential solution to avoiding salary delays would be to pay workers using existing rates and then recompute them if the President assents to the Bill before end of the month.

A case filed by activist Okiya Omtatah in 2018 set a precedent that tax measures cannot be enforced until the President signs them into law.

“This makes it difficult for the President to assent to the Bill, say in May, then backdate the benefits,” Mr Hira said.

Mr Kenyatta now faces the test of either accepting all the changes and assenting to the Bill or rejecting some clauses and referring them back to the House with his recommendations. This will require at least a third of the MPs to shoot down.

The Parliamentary Budget Office (BPO) — a unit that advises lawmakers on financial, budgetary and economic matters — estimates the reduced income and VAT measures will cost the Exchequer nearly Sh122.26 billion. Tax reliefs for earnings of up to Sh24,000 will cut government revenue by another Sh19.84 billion, while a drop in payroll taxes will cut PAYE revenue by Sh7.08 billion.

Similarly, the reduction in corporate tax will deny the Exchequer some Sh45.69 billion. The biggest revenue loss will, however, come from reduced general VAT levy from to 14 from 16 percent whose cost the BPO has put at Sh49.60 billion. The proposed drop in monthly turnover tax is likely to leave a Sh50 million revenue hole.

This story first appeared in the Business Daily.