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Lewis Njoka @LewisNjoka

Coronavirus shocks have come to bite Kenya Revenue Authority (KRA) hard as it records a dip in income tax amid loss of jobs.

Tax collected from people with gainful employment in the country recorded a nine per cent dip in growth between March and the end of June, the taxman has said.

It said Pay As You Earn tax (PAYE) ­ tax from individuals in gainful employment– grew by two per cent in financial year 2019/20 down from an average growth of 11 per cent recorded between July 2019 and February 2020.

“The slow growth was driven by decline in employment rate in the fourth quarter emanating from measures taken by mainly private firms to reduce operating costs,” the statement to newsrooms reads in part.

“The tax head was also majorly affected by the reduction of the top PAYE rate from 30 per cent to 25 per cent and a 100 per cent tax relief for persons earning below Sh24,000 per month,” it added.

Kenya reported the first case of Covid-19 on March 13. The announcement was followed by a series of interventions aimed at reducing infections and measures to increase disposable incomes of individuals.

Through changes in the Tax Laws Amendment Bill (2020), those earning less than Sh24,000 were exempted from paying PAYE while other tax bands also received corresponding deductions.

Prior to that, a person earning Sh24,000 was deducted Sh1,583 as PAYE. Additionally the maximum rate of tax for individuals was reduced from 30 per cent to 25 per cent.

Disposable income

While these measures served to increase individuals’ disposable income, they impacted negatively on the government’s PAYE collections.

Samuel Nyandemo, a senior Economics lecturer at the University of Nairobi says the reduced growth was anticipated, considering that the pandemic has hurt virtually every sector of the economy.

“Under the circumstances which economies are operating now, this was not a shock, it was anticipated given that the base for revenue collection has been suffocated by the Covid-19 pandemic,” he said.

He called on the President to ease Covid-19 containment restrictions further, saying it is now clear that virus will be us for quite a while.

“Next week, the president should now come to terms that Covid-19 is now with us and is going to be here for some time.

So it’s a question of opening the economy and allowing all sectors to function normally but taking into account stringent measures in terms of health protocols,” he said.

To reduce operation costs during the tough times occasioned by the pandemic, many private sector players laid off employees and introduced pay cuts, a move which affected PAYE tax collections negatively.