The Lower Eastern Times Opening The Third Eye
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Employers are urging the government to lower the housing levy contribution rate to 0.5%, remove VAT on basic food items, and base statutory deductions on employees’ basic pay.
Through the Federation of Kenya Employers (FKE), they are also requesting an adjustment of tax relief bands from Sh24,000 to Sh36,000. Additionally, they are calling for full compliance with the 6% wage increase mandated last year, with retroactive payments starting from November 2024.
FKE argues that these measures would enhance workers’ welfare and promote long-term business sustainability in Kenya.
The Housing Levy, which is a mandatory contribution to support the government’s affordable housing projects, currently requires both employers and employees to contribute 1.5% of an employee’s gross monthly salary. This totals 3%, as employers match the employee contribution.
Meanwhile, the draft Finance Bill of 2025 proposes changes to VAT classifications for essential goods and services. Experts warn that these changes could lead to higher consumer prices, as manufacturers may pass on the increased costs to consumers.
While President William Ruto’s government has stated it won’t raise taxes, some proposed changes from the National Treasury could still lead to price hikes. These include reclassifying certain goods from VAT zero-rated to VAT-exempt status. This shift would prevent producers from claiming VAT credits for related expenses, ultimately increasing their production costs and pushing prices higher for consumers.
The affected items include pharmaceutical manufacturing inputs, sugarcane transportation, locally manufactured mobile phones, electric bicycles, solar and lithium-ion batteries, and animal feed ingredients. This could result in price increases for common goods like sugar, milk, medicine, mobile phones, and solar equipment.
Additionally, FKE advocates for pegging statutory deductions (such as PAYE, NSSF, and NHIF) to basic pay instead of gross salary, which would leave employees with more take-home pay. Basic pay refers to an employee’s fixed salary before bonuses, overtime, or additional compensation, whereas gross pay includes all earnings before deductions.
FKE’s executive director, Jacqueline Mugo, stated that these changes would help reduce the cost of living, boost disposable income for low-income workers, and make Kenyan businesses more competitive. She also criticized the Central Organization of Trade Unions (COTU) for excluding employers from this year’s Labor Day celebrations on May 1.
Employers are seeking a stable, predictable, and business-friendly tax policy that encourages growth, capital formation, and investment to foster employment and higher wages. FKE also emphasized the importance of deciding whether Kenya wants to position itself as a manufacturing or trading nation.
“We want Kenya to be a producing country, exporting goods across Africa and beyond. Our shelves, trucks, and homes should be filled with ‘Made in Kenya’ products,” said Mugo.
While FKE supports President Ruto’s directive on ratifying ILO Conventions 189 and 190, it stresses the importance of adhering to the proper legal framework for the ratification process. They have called for full compliance with the Treaty Making and Ratification Act and related international instruments before moving forward.
