Many firms are opting for contract workers since they cannot afford permanent employees due to the taxes introduced in Finance Act 2023.
Kenya’s new tax system threatens the local labour market as employers now reevaluate the contracts issued to their employees. Some employers opting not to renew contracts coming up for renewal as others are moving to tweak contracts and factor in the increased tax provided by the finance act 2023.
Predictions by micro-leading firm Jijenge Credit Ltd suggest that Kenyan workers are losing bargaining power in the face of a high unemployment rate. More companies are not renewing contracts and others firing workers due to the high taxation implementations.
” What you will see as some of the taxation measures begin to take effect this month, is a radical evaluation of employment contracts between employers and their staff,” said the chief executive, Peter Macharia.
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The new law has increased monthly contributions from employees and employers to both the NSSF (National Social Security Fund) and NHIF (National Health Insurance Fund). According to Macharia, this will discourage employers’ ability to match the prices for all their employees.
Cumulatively from all the tax proposals, Kenyans would be parting with approximately 40 per cent of their income. As a result, most employers are forced to re-hire staff on a short contract model avoiding tax burden on their side.
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In turn, according to Macharia, there will be fewer contributions to the KRA and hence won’t finance the budget the country has set to spend in the financial year
The Finance Act has however been suspended from implementation by the court after Okiya Omtatah and other petitioners filed a case against its constitutionality.
Read Also: Court certifies Omtatah’s Case Challenging the Finance Bill as Urgent
