Nairobi County has lost more than Sh41 billion in interest and penalties for delaying to pay employee taxes and retirement contributions.
The amount is nearly equivalent to the county’s budget for the current financial year of Sh42 billion and points to the extent of financial mismanagement at the county, which has been deducting salaries but not remitting the cash to relevant agencies.
“Had the County remitted the respective deductions by due deadlines since the financial year 2011, savings of Sh41,331,036,159 would have been made. There was no evidence of measures taken by management to negotiate with the respective institutions,” the Auditor-General report says.
The report covering the financial year 2021/22 observes that by the end of June last year, the county had Sh72.8 billion in debts classified as “other pending payables”.
“Other pending payables amounted to Sh72,878,965,572 which includes amounts due to national government entities of Sh986,734,337; in respect of pay-as-you-earn (PAYE) of Sh762,382,808, value-added tax (VAT) of Sh118,553,546, and penalties of Sh105,797,983.
The amount of PAYE and VAT were deducted but not remitted to the Kenya Revenue Authority, contrary to Section 37 (1) of the Income Tax Act, which requires an employer paying emoluments to an employee to deduct therefrom, and account for tax thereon, to such extent and in such manner as may be prescribed,” the audit report notes.
It also observes that the county owed Lapfund — a contribution retirement scheme for county staff Sh28.5 billion, including Sh24.9 billion in respect of principal and interest.
This leaves penalties on non-remittance at Sh3.5 billion. The penalties are charged at a rate of three percent per month on the 15th of every month and an additional 36 percent compounded annually, and had accumulated from the financial year, 2011.
The county, auditors also found, that the county owes Local Authorities Pension Trust Sh23 billion, comprising principal and interest penalty amounts of Sh16,339,508,857 and Sh6,691,762,594 respectively.
The report also noted that the county has historical government loans of Sh15.3 billion and Sh3.8 billion from the Kenya Commercial Bank (KCB), dating back to the 1970s. The loans were used to finance construction of Umoja Two Housing Project and water infrastructure.
