The number of Kenyans earning more than Sh100,000 dropped to 79,909 last year, reflecting Kenya’s growing inequality in the formal sector and tax avoidance by the wealthy in the informal sector.
The Kenya National Bureau of Statistics (KNBS) data released on Tuesday show the top earners reduced by 4,861 members compared to a rise of 2,234 a year earlier, making it the first drop in a number of years.
The drop reflects significant business disruptions in the wake of Covid-19 economic hardships, which triggered losses and closure of firms after the State imposed restrictions to curb the pandemic.
Those earning more than Sh100,000 accounted for 2.9 percent of the 2.7 million formal workers captured in the Kenya Revenue Authority (KRA) database.
The share is not in line with luxury spending and the accumulation of property, including the purchase of homes and high-end cars that have been witnessed recently, analysts say.
The KRA has consistently questioned data showing a measly 2.9 percent of workers are paid Sh100,000 and above, pointing to a larger share of high-income earners whose lifestyles are not in tandem with the taxes they pay or their declared income.
The taxman says a sharp increase in imports of luxury items and multi-million-shilling investments in real estate have jolted it to a potentially massive tax leakage, which if tapped could yield billions of shillings in additional revenues to the Exchequer.
The KRA’s argument is supported by the fact that only a few Kenyans have officially registered as belonging to the high-income earners’ bracket despite the growth in conspicuous consumption in regions such as Nairobi.
The taxman reckons there are workers who earn extra cash from ventures such as real estate, dividends and royalties but fail to declare the additional income.
The KRA has struggled to bring more people into the tax brackets and curb tax cheating and evasion in the quest to meet targets in an economy where government income has consistently failed to meet targets.
Nearly half or 46 percent of the 2.74 million formal workers captured in the KRA database earned below Sh30,000, underlining the problem of Kenya’s pay inequality.
The earnings inequality has partly been attributed to the previous centralised system of government, which guided sharing of resources since Independence.
The devolved system of government, which took off in 2013, raised hopes of addressing the economic imbalance, as analysts say there is a need to offer incentives to attract private investors to counties and spread the wealth.
Modest economic activity in the past two years has entrenched the income inequality with fewer jobs and stagnant pay hurting the middle class most.
World Bank in its latest economic update noted that Kenya’s private sector remains weak with only 1,380 companies having employed more than 150 people.
Only three percent of the 138,000 formal employers have more than 50 workers while 94 percent of the 7.4 million micro, small and medium enterprises (MSMEs) have fewer than five employees.
The situation has been worsened by the impact of the pandemic that saw 737,500 workers, including those in the informal sector.
In 2019, the economy created 847,100 extra jobs. But formal jobs last year contracted for the first time in two decades, with 187,300 positions lost as the economy shrank for the first time since 1992.
Growth slid to negative 0.3 percent last year from 5.0 percent in 2019. This was the first annual GDP contraction since 1992 when the output slid 0.8 percent.
Recovery has, however, started with the Central Bank of Kenya expecting the economy to grow by 6.1 percent this year and 5.6 percent in 2022.
Official data shows that the private sector produced the bulk of those earning above Sh100,000 with men dominating the top pay scale.
About 62.6 percent of men or 50,102 of them earned more than Sh100,000 compared to 29,807 women in this club.
The highest-paying jobs are concentrated in the private sector, which had 68,000 or 85 percent of all the top earners.
The public sector, including parastatals, the national and county governments, employed 11,909 of those taking home the largest paycheques.
The education sector accounted for the largest share of those earning above Sh100,000 at 21.7 percent or 17,383 individuals, representing lecturers, administrators and secondary school teachers among others.
Financial services were second and accounted for 11,908 or 14.9 percent of the top earners, followed by wholesale and retail trade and repair of motorcycles and motor vehicles whose number stood at 10,522 or 13.1 percent.
None of employees in activities such as mining and quarrying and production of undifferentiated goods were earning above Sh100,000.
The actual labour earnings across the country remain unclear, with most Kenyans employed in the informal agricultural sector.
In total, however, the private sector has been doling out the biggest pay cheque in excess of Sh1 trillion last year or more than 70 percent of the total wage earnings.
This underlines the critical role of companies in creating and sustaining earnings from employment.