Mudavadi calls out State agencies sitting on Sh35b statutory deductions

Prime Cabinet Secretary Musalia Mudavadi

Prime Cabinet Secretary Musalia Mudavadi speaking during the official launch of the induction workshop for board members of state corporations, at Lake Naivasha Resort on April 12, 2023. He called out State corporations that have failed to remit about Sh35 billion in statutory deductions including Sacco savings, loans, and pension contributions.

Photo credit: Macharia Mwangi | Nation Media Group

Prime Cabinet Secretary Musalia Mudavadi has waded into revelations that State corporations have failed to remit about Sh35 billion in statutory deductions, directing the government agencies to honor the mandatory obligations.

Mr Mudavadi who spoke during a workshop for board members of state corporations in Naivasha, in Nakuru County, termed failure by some State corporations to remit employees’ statutory deductions as ’illegal and unethical.

“The auditor-general’s audit reports continue to reveal that many state corporations are defaulting on statutory remittances and even on dues to parties like banks and cooperative societies. This is not only illegal but also unethical,” said Mr Mudavadi.

“It is inconsolable that a public institution deducts from an employee’s pay-slip third party payments, and fails to remit the same. Public ethics demand that if cash to service the entire payroll is not available, it is prudent to delay the entire payment than to play mischief by servicing only the net on the payroll,” further said the Prime Cabinet Secretary.

The warning comes amid revelations that about 150 government agencies are holding onto Sh35, 189,136,021 unremitted statutory deductions.

Among the deductions that have not been remitted by the institutions include Pay as You Earn (Paye), National Social Security Fund (NSSF), National Health Insurance Fund (NHIF), as well as deductions of Sacco savings, loans, and pension contributions.

The failure to remit the critical statutory deductions means many may have little to live on in their sunset days, subjecting them to suffering.

A document submitted to Parliament by the Treasury last month indicates that State corporations are struggling in meeting their financial obligations.

In all, the parastatals have cumulative pending bills of Sh400.68 billion, which, besides staff deductions, also includes payments owed to contractors and suppliers.

The document was sent to Parliament as most corporations who appear before various committees normally complain that they do not have money to settle pending bills and remit the statutory deductions.

To find out the truth, Parliament requested a report on the status of the pending bills as of December 2022.

Among the bodies that have failed to remit deductions to NSSF, NHIF, Saccos and the taxman include the Nakuru-based Pyrethrum Processing Company of Kenya, Media Council of Kenya, the Kenya National Examinations Council, the Kenya Broadcasting Corporation, the Kenya Ferry Services and the Postal Corporation of Kenya.

The documents showed that the media council has not remitted Paye amounting to Sh743 million; NSSF contributions amounting to Sh391 million; NHIF deductions totaling Sh2.005 million unremitted staff Sacco deductions amounting to Sh1.765 billion.

The council also has unremitted staff loan deductions totaling Sh50 million. It also owes suppliers Sh159.251 million.

The Pyrethrum Processing Company of Kenya has not unremitted PAYE deductions of Sh155,727,146 and other salary clearances of Sh13.2 million with the PAYE continuing to attract interest and penalties in line with the provisions of Section 37(2) of the Income Tax Act Cap 470 of the laws of Kenya.

The NSSF Act and the Employment Act treat non-remittance of these statutory deductions as criminal.

“An employer who fails to comply with the provisions ... commits an offence and shall on conviction be liable to a fine not exceeding Sh100,000 or to imprisonment for a term not exceeding two years or to both,” the Act reads in part.

The Kenya Broadcasting Corporation has also not remitted Sh325.3 million of staff Paye. It has Sh27.3 million of unremitted staff Sacco deductions and Sh2. 67 billion in pension arrears for its employees. The national broadcaster also owes suppliers Sh315 million.

The Kenya Ferry Services has a total of Sh32 million of unremitted staff Sacco deductions. In addition, it owes suppliers 169,609,281.

The Postal Corporation of Kenya has an outstanding Sh478 million of staff Paye. It has also not remitted Sh51 million in staff Sacco deductions and another Sh343 million in staff loan deductions. The corporation has also not remitted Sh1.2 billion in staff pension arrears. The corporation also owes suppliers Sh2. 9 billion.

At East African Portland Cement, Sh2. 6 billion of staff Paye has not been remitted. In addition, it has not paid suppliers Sh1.9 billion.

Mr Mudavadi also directed State corporations in the country to support the government in economic resuscitation or risk privatisation.

This comes amid a report from the Treasury that some state corporations were making huge losses, despite the government pumping in more funds.  

“This situation is unacceptable. You have an urgent duty to turn things into profitability, or otherwise, the hammer of privatization is knocking at the door,” said Mudavadi. 

Mudavadi revealed that 79 state corporations are commercial in nature and their main reason for existence is for-profit through dividends to the National Treasury.

“Unfortunately, only about 5 percent of the 79 Agencies pay any such dividends. In fact, over 40 percent of the commercial state corporations turn to the exchequer for financial subsidy,” he stated.

He attributed the losses to poor governance and lack of strategy by the management of these Agencies saying they had no other option but to perform.