Govt Mandates IFMIS for PAYE, NSSF, and Loans Among Other Employee Deductions

Treasury CS Njuguna Ndung'u speaks during the Council of Finance & Economic Affairs & Pre-Budget Consultation in Arusha.
Treasury CS Njuguna Ndung'u speaks during the Council of Finance & Economic Affairs & Pre-Budget Consultation in Arusha.
National Treasury

The government is tightening its grip on employee deductions and remittances, aiming to eliminate inaccuracies and inefficiencies in the system. This is to crack down on the government institutions that fail to remit employee deductions which has paralysed many agencies and operations in institutions like public hospitals.

Why does this matter? In a bid to bolster accountability and transparency in financial management, the government is set to begin the collection of employee deductions through the Integrated Financial Management Information System (IFMIS).

This move aims to provide the Kenya Revenue Authority (KRA) with precise data on deductions collected from employees, leaving no room for discrepancies or errors.

The announcement came following a high-level meeting held on Friday, June 7, between the National Treasury CS Prof. Njuguna Ndung’u, his Public Service counterpart Moses Kuria, officials from KRA, the Central Bank of Kenya, and representatives from the Integrated Payroll & Personnel Database (IPPD). The discussions centered on integrating statutory deductions for employees through the IFMIS platform.

Why IFMIS? IFMIS, hailed as the nerve center of financial operations, is designed to enhance efficiency in planning, budgeting, procurement, expenditure, and reporting within both national and county governments. Despite its pivotal role, IFMIS has faced scrutiny due to corruption allegations, prompting concerns about its effectiveness in ensuring accountability.

Public Service Cabinet Secretary Moses Kuria at his office on December 11, 2023
Public Service Cabinet Secretary Moses Kuria at his office on December 11, 2023
Moses Kuria

What deductions? According to the Treasury, the integration of employee deductions into IFMIS will significantly enhance remittance efficiency for various schemes, including Pay-as-you-earn (PAYE), NSSF, NHIF, housing levy, pension schemes, house rent, court decrees, hire purchase, mortgages, SACCOs, and bank loans. 

This move aligns with the government's efforts to streamline expenditure and improve financial management across ministries, departments, and agencies (MDAs).

"The collaboration with IFMIS will provide KRA with accurate, centralized information," stated the Treasury.

The Bigger Picture: The government's push to address the pervasive issue of unremitted statutory deductions is critical for civil servants facing a myriad of challenges. These challenges include tax-related issues and potential disruptions in accessing essential government services. Recent data reveals a staggering increase in unremitted deductions, reaching Ksh78.6 billion in the three months leading to September 2023.

This sum represents deductions withheld from workers' earnings but not transmitted to the relevant authorities. Notably, deductions earmarked for the National Social Security Fund (NSSF) saw a dramatic surge of 197 percent, soaring to Ksh407.3 million from Ksh137 million. Similarly, Sacco deductions spiked by 162 per cent, escalating to Ksh2.6 billion from Ksh1 billion previously.

The surge in unremitted deductions also extends to payroll taxes owed to the Kenya Revenue Authority (KRA), which surged by 133.5 per cent, amounting to Ksh25.3 billion. However, deductions for NHIF and staff loans witnessed contrasting trends, declining by 19.3 per cent and 17.8 per cent, respectively, to Ksh80.9 billion and Ksh2.4 billion.

Central Bank of Kenya Governor Kamau Thugge
Central Bank of Kenya Governor Kamau Thugge

Addressing this issue is crucial not only for the financial stability of civil servants but also for ensuring the efficient functioning of government services. As unremitted deductions continue to escalate, the government's efforts to curb this trend are imperative to safeguard the welfare and financial security of its employees.

Why the push to IFMIS? The changes in IFMIS, mandated by the International Monetary Fund (IMF) as part of Kenya's programme review, include the capability for MDAs to capture multi-year commitments. This update, slated for implementation by the end of 2023, will ensure better planning and continuity of projects beyond the annual budget cycle.

In a significant shift towards modernizing financial management practices, the Cabinet recently approved the adoption of accrual accounting standards, marking a departure from the current cash-based system. This transition, once fully realized, is expected to elevate the standards of accounting in the public sector, reflecting a quantum leap in financial governance.

When will it start? The changes are expected to start in the new financial year. 2024/2025 as per the agreement between Kenya and the IMF. However, neither the Treasury nor Public Service ministries have issued dates of the commencement.

Treasury has been conducting training on IFMIS in government institutions since last year.

Council of Governors Chairperson Anne Waiguru during a special sitting of governors on April 16.
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