Treasury seeks assent for KQ staff tax-free send-off package
National Treasury wants Parliament to approve tax exemptions for 187 employees of Kenya Airways (KQ) retrenched between January and March.
“The legal notice seeks to exempt from income tax the send-off package…paid to the 187 retrenched employees of KQ Plc in accordance with the provisions of section 13(2) of the Income Tax Act,” Treasury Cabinet Secretary Ukur Yatani, said in a notice to the National Assembly.
The Act empowers the Treasury CS, by notice in the gazette, to exempt from tax any income or class of income which accrued in or was derived from Kenya.
Yatani’s decision will be a setback to Kenya Revenue Authority (KRA) who were eyeing the revenue to boost reserves as demand to cover budget deficit piles pressure on new sources of funds.
He explained that the exemption which is coming during the Covid-19 pandemic will encourage more staff to take part in the voluntary retrenchment which is part of a turnaround programme the airline adopted since 2019 to be able to rescue itself from collapse by reducing the cost of operations.
The turnaround plan which included rationalisation of staff to reduce cost of operations as the company was making losses, started after the board approved its implementation in 2016.
According to Yatani, due to the impact of Covid-19 on the aviation industry since 2020 where most of the international travels were suspended, fast-tracking of the rationalisation process became necessary in order to save the airline.
“Considering that the retrenchment is voluntary, the tax exemption and especially during the Covid-19 pandemic will encourage staff to take the offer and also provide reasonable income to start some activities to sustain themselves,” said Yatani.
While defending his decision, Yatani said this move is necessary because it is the representatives of the affected staff who requested for an improvement of the send of package that was agreed through the Collective Bargaining Agreement (CBA) and this is one of the ways to help improve the send-off package.
Yatani observed that Kenya Airways has been reporting losses for a long period and now the situation is worse, leading to the retrenchment of some staff under a turnaround programme to sustain the airline.
“In view of the above Kenya Airways sought the intervention of the National Treasury to exempt the staff from income tax... as one of the ways to improve the send-off package,” Yatani added in the legal notice.
In the brief to lawmakers, Yatani explained that the implementation of the exemption will be monitored by KRA and shall not apply to other pension benefits paid to the 187 employees.
The retrenched employees, he said shall not be re-employed by Kenya Airways in any capacity under any terms before the expiry of five years from the date of retrenchment.
Yatani added: “The airline will be required to furnish KRA with names of the retrenched employees, the date they left service, the amount paid to each of them and a copy of the letter confirming the retrenchment.”
The request by Yatani to the MPs comes hardly five months after in March this year the airline reported a Sh36.57 billion loss for the year 2020 with the total turnover shrinking by 60 per cent to Sh52 billion.
The national carrier also announced that passenger numbers had gone down during the year, to stand at 1.8 million compared to 5.2 million in 2019. KQ’s Chief Financial Officer Hellen Mathuka pegged the losses on reduced demand for air travel owing to the Covid-19 pandemic.
Air transport has remained one of the hardest-hit global industries since the beginning of the crisis. Covid-19 pandemic has resulted in a full-scale global transportation crisis.
It became quickly evident that it would evolve in a crisis like no others bringing the industry into survival mode, impaired by the loss of traffic and revenues.