Employers across the country are preparing to face the brunt of new tax mobilization and social welfare funds introduced by the William Ruto administration. These proposals, aimed at increasing government revenue and expanding social programs, have raised concerns among employers regarding the rising cost of doing business and the potential impact on employment opportunities and salaries.
The implementation of the NSSF Act has already added to the financial burden for employers. The act requires employers to match the increased contributions of employees, which has raised monthly deductions from Sh200 to Sh600 for the lowest earners and from Sh320 to Ksh 1,080 for top earners. The proposed amendments to the National Health Insurance Fund (NHIF) will further raise deductions to 2.75 percent of basic salaries from the current ceiling of Ksh 1,700 per month. These increases in statutory deductions put additional strain on employers’ budgets and may limit their ability to invest in other areas of their businesses.
Another potentially major challenge for employers comes in the form of additional statutory deductions. The introduction of mandatory deductions to the National Housing Development Fund will place half of the burden on employers. Unlike employees who can claim their contributions, employers cannot recover these deductions. In addition, employers will be required to match employee contributions by up to Ksh 2,500 per month per employee. This increase in staff costs may force companies to consider hiring freezes or even job cuts. Moreover, employers may face demands for pay rises from employees seeking to mitigate the impact of the increased deductions on their take-home pay.
Another significant challenge for employers is doubling the VAT on fuel to 16 percent. This increase will have immediate effects on transportation costs and the cost of producing goods. Higher fuel prices will also impact electricity costs, as they are closely linked. As a result, employers may have to allocate more funds for fuel and transport cost reimbursements to employees, leading to increased payroll and operating expenses.
The Finance Bill also proposes adjustments to turnover tax, potentially subjecting small businesses with revenues between Ksh 500,000 and Sh1 million per year to the tax. Businesses with a turnover greater than Sh15 million but not exceeding Sh50 million will now be required to account for corporate taxes at a rate of 30 percent, increasing compliance costs. Moreover, the taxman’s expected disallowance of expenses not supported by invoices compliant with the Electronic Tax Invoice Management System (eTIMS) may pose challenges for both small traders and larger firms, leading to increased financial pressure.
Introducing a higher band for pay as you earn (PAYE) at 35 per cent could also prompt employees in the higher tax bracket to demand pay raises to offset the higher taxes, further increasing the staff cost base for employers.
In addition to these challenges, proposed amendments to the Tax Appeals Tribunal Act would require companies to deposit 20 per cent of disputed taxes or an equivalent amount as security with the Kenya Revenue Authority (KRA) before filing an appeal. This could strain company liquidity and cash flows and potentially prevent some businesses from appealing against the tax demands.
Employers are also grappling with the new requirement for withholding VAT agents to remit taxes within three days, instead of the previous provision of 20 days of the following month. Tax experts argue that this shorter timeline presents administrative burdens and may be challenging for taxpayers to meet.
Furthermore, the Finance Bill eliminates the KRA Commissioner’s power to waive penalties or recommend waivers based on hardship or difficulty in recovering taxes, further increasing the financial burden on businesses.
All of these are potential challenges that await employers and businesses beginning 1st July 2023 should the controversial Finance Bill 2023 be signed and passed into law, highlighting just how difficult it might become to do business in Kenya. The bill has been met with resistance in many quarters, which is understandable, given the raft of changes it plans to introduce in one go. One wonders will the economy really weather the storm. After all, a country cannot tax its way to prosperity.
As employers brace for the impact of these new taxes, there are concerns that the increased business costs may hamper companies’ ability to grow, invest, and create new job opportunities. The William Ruto administration must balance revenue generation and support a conducive business environment to ensure sustainable economic growth and employment stability.
