Companies lay off 70,000 on high cost of doing business

Monday, November 27th, 2023 01:20 | By
Companies lay off 70,000 on high cost of doing business
High cost of capital and increase in interest rates are among factors impeding private sector operations in the country. PHOTO/Alice Mburu

Employers have laid off more than 70,000 workers in the past year as the rising cost of doing business hit companies hard, leaving them with strained working capital.

The lost labour force, according to the Federation of Kenya Employers (FKE), occurred between October 2022 and November this year and represents three per cent of the total jobs in the formal sector.

FKE is expected to launch the full survey report on jobs trends next month, but there are early signs that 40 per cent of the employers are set to further trim their workforce in the short term to stay afloat.

FKE chief executive Jacqueline Mugo says the enactment and implementation of the Finance Act 2023 has made the cost of doing business unsustainable, aggravated further by the weakening of the shilling against the dollar, which has hit hard import-dependant firms.

Operational costs

“The employers’ view is that the changes have had an overall negative impact on cash flows and the financial positions of enterprises in various ways: Direct impact on the payroll, impact on demand for General Wages review, risk of business closure and increased laying off employees,” Mugo said. “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 layoffs coincide with losses and drops in profits that several firms, including banks, manufacturers, and media houses, have reported in the last few months.

Despite employing a small portion of the labour force, the formal sector still contributes the largest portion of the government’s tax revenue amid struggles by the National Treasury to bring the informal players into the tax bracket.

The informal sector employs about 84 per cent of the labour force. Kenya Revenue Authority (KRA) has so far been unable to meet revenue collection targets set by the treasury. The taxman, for instance, missed Pay-as-you-earn (PAYE) tax by 11.2 per cent in the first quarter ending September 2023 as it collected Sh126.5 billion against a target of Sh142.5 billion in that tax head.

Missed tax targets

Corporate Income Tax (CIT), which had a collection target of Sh89.2 billion, was also 22 percent off target as only Sh69.5 billion was managed. FKE, the lobby group representing employers in Kenya, wants PAYE slashed to 25 percent from the current 32.5 percent for the high-income earners.

This is in addition to reducing CIT to 25 per cent from 35 per cent, halving Value Added Tax (VAT) on fuel to 8 per cent, capping of newly introduced housing levy at Sh5000 per month, and scrapping the minimum turnover tax (ToT) - payable regardless a business makes a profit or not. 

“This will help in attracting investment and allowing the corporates to have money to plough back into their business to create more employment. The additional investment will result in more tax revenue,” says the federation.

The fear of looming mass layoff among 40 per cent of employers come at a time when there are growing concerns over the mismatch between workers’ skills and those required by the available jobs.

Triggered by fast-paced technological changes and ever-evolving labour market dynamics, this has become a top policy concern to potential employers who might now be forced to review existing positions, job descriptions, and associated compensation.

A recent report by FKE, in collaboration with Africa Digital Media Institute (ADMI), and Nexford University, shows information and communication technology (ICT) and finance sectors as the most affected by the severe shortage of quality and relevant skilled workforce.

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