Legislators Weigh in on the New Retirement Savings Tax Proposal

Uncapped interest
Shares

COVID-19 saw the government slash VAT and income taxes to cushion Kenyans financially. Projections show that the taxman may fail to hit his target due to this directive. To salvage the situation the National Treasury in its 2020/21 budget included a raft of tax measures to help KRA meet its revenue targets and among those targeted include retirees.

The Treasury proposed to impose a tax of up to 25 per cent on the monthly pay of pensioners and another tax on NSSF’s annual earnings through the Finance Bill, which will become law on July 1. Tax on NSSF’s income is expected to lower the annual interest that the fund pays as workers’ retirement savings.

However, the National Assembly’s Finance and National Planning Committee has declined to support the proposal arguing that, the new tax on the retirement savings, arguing that it would add to the growing old-age poverty. If legislators adopt the recommendations by the house committee, the retirees aged 65 and above and the National Social Security Fund (NSSF) will be spared from paying taxes.

“The Bill proposed to remove the exemption from income tax that was available for an income of the NSSF. The amendment is intended to retain the exemption for this income, to protect the benefits of the members of the NSSF,” read a report.

The parliamentary committee further urges that the removal of exemptions on pension and NSSF income risk derailing the State efforts to have more Kenyans secure their financial health in old age through retirement savings. The pension coverage in the country according to the analyst is equally inadequate, while the payouts from NSSF are barely sufficient. Clearly this tax basket, may not be much of a  revenue cow for the taxman as it is shrouded with too many limiting factors.

Comments
Shares