The government is considering scrapping taxation on pension withdrawals by savers under 65, giving relief to those looking for early retirement but presenting a headache for pension administrators.
The Treasury revealed plans to change current pension laws that make it costly for workers to access their pension before reaching 65 years of age. In its revenue plan, the company said it expected to have an average revenue of about $1.1 billion based on the age of 69 years old.
The move means retirees above 65 are not allowed to receive their pension without paying taxes. For those who are above 50, but below 65, only the first Sh600,000 of the pension withdrawal is tax-free, while the next Sh1.6 million attracts tax between 10 percent and 25 percent tax. Any amount above this is taxed at 30 percent.
While Sh600,704 is taxed by 10 percent and 25 percent, the balance to be taxed at 30 percent, is for those tapping into their pension before turning 50.
An exempt, exempt, exempt structure for pension means that contributions towards pension, investment income generated from pension contributions, and withdrawals by contributors are all exempted from tax.
This is a departure from the current exempt-exempt tax, where contributions and investment incomes are exempted from tax, but withdrawals are subjected to a graduated tax structure depending on the contributor's age.
The cash management will be a big nightmare given that they make long-term investments, said Robert Waruiru, tax and regulatory partner of Ichiban Tax & Business Advisory LLP.
Mr Raichura said: The world will be better off with a president who understands how to create a democratic society, he said.