Govt plans fund to cushion workers in financial distress

Kenyans holding jobs could soon be obligated to pay a two percent tax from their incomes to cushion the unemployed as part of new government plans in the next two years.

The proposal contained in the National Treasury post COVID-19 economic recovery strategy is expected to set the stage for increased taxation for employed individuals who already account for a number of other statutory deductions such as NHIF and further indirect taxes.

Proceeds from the tax to be partly contributed by employers at the rate of one percent are expected to go into the soon to be set up unemployment insurance fund (UIF).

“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 National Treasury said.

“The amount of contribution to the fund with be two per cent which include one per cent paid by employees from remuneration paid and one per cent paid by the employers.”

While the Treasury did not divulge details as to how much it is capable of raising from the tax, the Planning Ministry along its development partners is expected to sink in a total of Ksh.300 million to the fund across the next two fiscal years to June 2022.

The first tranche of Ksh.100 million is expected to be sunk in the financial year ending in June next year.

According to the latest statistics from the Kenya National Bureau of Statistics (KNBS), only 15.9 million Kenyans found in both the formal and informal sectors would be eligible for the tax with other Kenyans being unemployed or outside the labour force.

The UIF is seen as part of the solution to Kenya’s endemic unemployment which has been worsened by the COVID-19 pandemic.

For instance, Kenya’s unemployment doubled between April and June to 10.4 per cent from 5.2 per cent in March as 1.7 million more Kenyans were rendered unemployed following widespread business closures occasioned by COVID-19 restrictions.

Combined, more than 1.9 million Kenyans have lost their jobs since the turn of the year.

While KNBS gives the number of the unemployed Kenyans as 1.8 million through the strict unemployment definition, the true number of those unemployed is masked by the number of inactive members of the labour force who exceed 7 million by count.

While the National Treasury did not offer additional details including the eligibility criteria for beneficiaries, UIFs’ in other countries provided a reference point for understanding the cushioning framework.

In the US, States have unemployment insurance schemes which pay out unemployment benefits when one loses their job and meets certain eligibility requirements.

The benefits are paid out by specific payroll taxes collected for that purpose.

One does not however qualify for the benefits if they are self-employed, quit their jobs voluntarily or are fired for cause.

The benefits are usually available for up to 26 weeks which equates to a six-month period.

Across the Atlantic, countries such as the United Kingdom and Germany have varied unemployment benefits which include furlough schemes which sees government partly compensate workers for the temporary loss of employment.