Employers are facing a difficult uphill battle as more tax deductions and penalties are set to take effect if the new proposed tax bills are passed which is largely pushed by Treasury CS John Mbadi.
In one such bill, even though the Finance Act 2023 amendment made withholding tax collections due within five working days with no defined penalties, the new proposal seeks to eliminate this relief.
If the new amendment bill passes, employers and individuals who remit withholding tax will face significant penalties for failing to meet this deadline.
According to the Tax Procedures (Amendment) (No. 2) Bill 2024, a person who is required under the section to withhold tax but fails to do so without reasonable cause, fails to do so would suffer a penalty of 10 percent of the amount owed.
“A person who is required under this section to withhold tax and, without reasonable cause, fails to withhold the whole amount of the tax which should have been withheld; or fails to remit the amount of the withheld tax to the Commissioner by the fifth working day after the deduction was made, shall be liable to a penalty of ten per cent of the amount not withheld or remitted,” part of the bill reads.
In the Finance Bill 2024, the government also proposed a 3% withholding tax on goods supplied to public entities, with a 5% rate for non-residents.
Withholding tax is a type of income tax that is paid to the government by the income payer or employer rather than the income recipient or employee.
It is deducted at the source and charged to the employer rather than the employee, and it is much lower than the Pay-As-You-Earn (PAYE) Tax.
Another proposal in the bill that has essentially been plucked from the Finance Bill 2024 and could greatly impact what employers remit to their employees is the one proposing an increase in the monthly deductible for pension contributions.
If passed, this could change the pension sector from Exempt-Exempt-Exempt to Exempt-Exempt-Tax, raising contributions from Ksh20,000 to Ksh30,000.
This revelation comes as National Treasury Cabinet Secretary (CS) John Mbadi confirms that the government will review the National Social Security Fund (NSSF) Act 2024.
This was done to level the playing field for private-sector employers who wanted to implement their own private pension plans for their employees.
“The government is committed to addressing these issues to safeguard the operations of all pension funds and give employees the most favourable pension benefits,” Mbadi stated in his November 4 address.
Even after the Employment and Labour Relations Court (ELRC) declared it unconstitutional on four grounds, the contentious act, which has been the subject of legal battles since its inception, remains in effect.
In a February ruling, the Supreme Court, through Chief Justice Martha Koome, overturned the Court of Appeal’s orders allowing the government to increase mandatory pension contributions under the NSSF scheme and referred the case back.
“In the circumstances, this case is to be remitted to the Court of Appeal to determine the substantive merits of the Judgment of the ELRC,” the CJ ruled.“
Due to the nature of the matter, the surrounding public interest, and the time taken by the case in the corridors of justice, it is prudent that the matter be heard on a priority basis.”
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