Tough Times As Kenyan Companies Consider Mass Firing Of Staff

The Federation of Kenya Employers (FKE) has warned that millions of Kenyans risk losing their jobs if the cost of doing business continues to be unsustainable due to high taxes that have emerged since the enactment and implementation of the Finance Act 2023.

In their press statement dated Friday, November 24, FKE lamented that the changes as a result of the Finance Act have had an overall negative impact on cash flows.

Financial positions of enterprises have also been negatively affected, which include the direct impact on the payroll, impact on demand for general wages review, risk of business closure and increased laying off of employees.

"The weakening of the shilling has aggravated the situation further and has adversely affected businesses that rely on imports, including imports of machinery and equipment necessary for our manufacturing industries.

FKE CEO Jacqueline Mugo speaking during the release of the Skills Needs Survey report on November 21, 2023. /FKE KENYA

"The Kenya shilling lost 21% of its value between 13th September 2022 and 22nd November 2023. The exchange rate of the Kenya shilling against the USD has hit a high of 152.45 compared to 121.05 at the same time in 2022. This has been largely attributed to capital flight and reduced inflow of foreign currency due to the low value of exports," stated FKE in part.

The employers body further lamented the dire state of employment in the country, noting that it is still reeling from the aftereffects of the Covid-19 pandemic and many are yet to regain the financial muscle.

It revealed that on a daily basis, it receives notifications from employers regarding their intent to declare redundancy, adding that between October 2022 and November 2023, 70,000 jobs have been lost in the formal private sector, according to a survey FKE undertook to determine the impact of the increased costs on jobs.

"40 per cent of employers have reported that they are planning to reduce the number of employees to meet the increasing costs of operating in Kenya," FKE warned.

The body also lamented that the cost of capital in the country remains high making it hard for the private sector to operate. This cost has been affected by various factors such as interest rates, inflation, market conditions, and government policies.

"On 26th June 2023, the Central Bank of Kenya raised its benchmark rate by 100 basis points to 10.5% in 2023, bringing borrowing costs to their highest since August 2016. This has made the cost of credit to businesses go beyond reach thus affecting business growth," added FKE.

"The overall year-on-year inflation rate as measured by the Consumer Price Index (CPI) was 6.9 per cent, in October 2023. Credit risk remains elevated with Gross Non-Performing Loans (NPLs) to Gross Loans Ratio standing at 15 per cent at the end of the third quarter of 2023, an increase from 13.3 per cent recorded at the beginning of 2023."

The increase in business costs has largely been driven by tax measures, global geopolitical developments, and climate change, and even though FKE revealed that Kenya may not be able to have much control over global geopolitical developments and climate change, the country can work on its tax measures to reduce the cost of doing business in the country.

FKE thus called for the review of the Value Added Tax (VAT) on Petrol, PAYE and Corporate tax. 

"We propose that the VAT on petrol revert to 8 per cent as it was before the enactment of the Finance Act 2023. The increase in VAT on petrol has a regressive effect on the economy," FKE urged.

"We also appeal to policymakers to consider reducing the PAYE to a maximum of 25 per cent. This is because food inflation remains the highest contributor to the cost of living."

The enactment of the Finance Act, of 2023 introduced a raft of tax measures in what President William Ruto's government said was to expand the tax base to increase revenue base and save the country from overreliance on loans.

Other than the doubling of VAT on fuel from 8 to 16 per cent, the new Act required Kenyans to make a monthly contribution of 1.5 per cent of their gross pay towards the affordable housing programme. To reverse the negative effects of the new taxes on the cost of doing business, FKE proposed that the government review the taxation model and cap the amount at Ksh5,000 as was initially proposed.

The Federation also called for a review of the corporate tax to the previous 25 per cent from 30 per cent to help attract investors and help corporates plough the money back into their businesses and create more employment.

"The additional investment will result in more tax revenue. In addition, we seek the removal of the minimum turnover tax. This tax is going to exacerbate informality and destroy micro businesses that employ 84 per cent of wage employees in Kenya.

"Businesses are closing down, and we are seeing employees increasingly becoming working poor. We are currently in a situation where businesses are not able to meet their operational costs and at the same time employees are not able to make ends meet," the employers body added.