The National Treasury has proposed a new two per cent income tax on Kenyans holding jobs to cushion unemployed Kenyans from harsh economic conditions.
One per cent will be deducted from the remuneration paid to the employee while the other one per cent will be matched by the employer.
If implemented, proceeds from the new salary deductions would go into the yet to be established Unemployment Insurance Fund (UIF).
It is among government plans documented in a November paper from the National Treasury titled Post Covid-19 Economic Recovery Strategy 2020-2022.
“The government will establish a UIF to cushion workers in financial distress by providing them with short-term relief when they become unemployed, or are on unpaid leave or unable to work because of illness,” the paper read in part.
If the deduction is implemented, it would add to other statutory deductions for Kenyan employees.
Already, Kenyans holding jobs are subject to a number of statutory deductions including National Social Security Fund (NSSF) and National Hospital Insurance Fund (NHIF).
The Ministry of Planning and various development partners are intent on pumping Ksh300 million into the Unemployment Insurance Fund across the next two fiscal years to June 2022.
The Treasury did not, however, disclose how much they expected to raise from the new tax.
It is seen as one way of dealing with the unemployment crisis in Kenya, which has the highest youth unemployment rate in East Africa.
Adding to the grim statistics are numbers from the Kenya National Bureau of Statistics (KNBS) indicating that more than 1.7 million Kenyans have lost their jobs since the onset of the Covid-19 pandemic.
The situation was driven by widespread business closures and cost-cutting measures undertaken by various firms.
The paper meant to guide Kenya’s economic recovery strategy also proposed higher taxes for wealthy Kenyans.
“In this regard, the government is committed to the following revenue enhancement measures … expanding the tax base with a focus on revenue streams not yet fully explored such as taxation of high net worth individuals (HNWI), property taxes, e-commerce, informal sector players, professionals, registered companies, and individuals trading on line who are currently outside the tax net,” it read in part.
The Treasury did not, however, divulge details of the planned increased taxation for high-income households.