Salaried Workers to Retain Sh. 1000 in Tax Savings As PAYE Relief Ends
Salaried workers will keep sh. 1000 in tax savings in January when the treasury will withdraw the special reliefs that they granted to cushion households and businesses from economic shocks of the novel coronavirus pandemic.
Cabinet Secretary for Treasury Ukur Yatani on Wednesday said that the treasury will retain tax exemptions on earnings up to Sh. 24,000 in line with a presidential directive – handing relief to more than 300,000 workers falling within this pay scale.
Because of this, all workers will continue to enjoy preferential personal tax relief of sh. 2,400 as compared to the normal sh. 1,400 before the pandemic invaded the country.
However, the highest pay-as-you-earn (PAYE) tax charge will revert to the previous 30 per-cent from the 25 percent that was set as a stopgap.
Top earners taking home a monthly pay of more than sh. 1 million could lose sh. 52, 229 of their income beginning January when the treasury reverts to the old terms.
Workers on sh. 50,000 could lose up to Sh. 4 241 while those earning sh. 100,000 and sh. 150,000 could lose sh. 7,229 and sh. 9,717, respectively in tax reliefs they have been on since the COVID-19 relief package was implemented as from May.
Mr. Yatani said that the reliefs were no going to be sustainable any longer due to the persistent revenue collection shortfalls amid a subdued economic activity, which affected the implementation of government programs.
Official data shows that in the first four months of the current financial year that will end in October, the government did not meet its revenue collection target by sh. 65.4 Billion. This included cash from donors. Cumulative revenue totaled sh. 505.3 Billion in the July-October period as compared to what was a target of sh.570.7.
“The shortfalls in government revenues are due to the suppression of economic activities because of the coronavirus pandemic together with the tax reliefs implemented in April 2020 to cushion Kenyans and business from the impact of COVID-19,” Mr. Yatani told a meeting to commence preparations of the budget for the year starting July 2021.
The revenue does not meet the background of rising expenditures, which have widened the deficit, which the treasury met via borrowing.
Provisional information by the Treasury indicates a deficit of Sh. 223.7 Billion in the first four months of the current fiscal year. This marks a growth of sh. 89.9 or 67.2 percent, as compared to a similar period last year.
Mr. Yatani raised the full-year budget deficit forecast last month for this fiscal year last month to 8.9 percent (Sh. 1 trillion) of gross domestic product from 7.5 percent (sh. 841.06 billion) in June.
To boost revenue, the corporation tax for resident firms shall revert to 30 percent from 25 percent of their gross sales when the COVID tax reliefs will cease.
Mr. Yatani is expecting the removal of the tax holidays and the progressive opening up of the economy to reverse the revenue shortfall trend in the second half of the financial year.
The shortfall in the budget has also risen after the Treasury raised estimated expenditure by sh. 128.4 billion to Sh. 2.92 trillion, via a proposal. The proposal shall be included in a supplementary budget for approval by Members of Parliament(Lawmakers).
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