Counties face KRA, Treasury wrath over huge pension arrears as senators push for action

County governments with outstanding pension remittances now face the wrath of the Treasury and the Kenya Revenue Authority (KRA) as senators press for action to clear the arrears.

Treasury CS Njunguna Ndung'u has revealed that his ministry was considering deducting directly from the counties’ accounts.

“The National Treasury may consider deducting the funds at source, that is, deducting from the budget allocations,” Njunguna said on Tuesday.

Appearing before the Senate’s County Public Investments and Special Funds Committee (CPIC), the CS also disclosed plans to seek KRA services to collect the debt.

The committee is investigating the huge unremitted pension deductions by the devolved units.

This means that the taxman could attack the counties’ assets and apply other legal means to recover the money owed to pension firms by the devolved units.

“In consultation with the Retirement Benefits Authority as per the provisions of section 53 (b) of the Retirement Benefits Act, 1997 consider s policy that allows the Trustees to refer the matter to KRA as a debt collecting agent to recover outstanding debt,” the CS said.

KRA, the CS told the committee chaired by Vihiga Senator Godfrey Osotsi, could also be appointed a debt collecting agent for future contributions.

However, the committee questioned the legality of the Treasury’s plan to deduct the money at source.

“Deducting the money at source will be against article 219 of the Constitution. But we can look for a way of manoeuvring this article and manage it administratively,” Narok Senator Ledama Olekina said.

Article 219 states; “A county’s share of revenue raised by the national government shall be transferred to the county without undue delay and without deduction, except when the transfer has been stopped under Article 225 (by Parliament).”

Currently, the county governments owed three pension schemes – Laptrust, Lapfund and County Pension Fund (CPF) – in excess of Ksh.65 billion.

However, the outstanding amounts have been contested with the counties and the pension firms giving contradicting figures.

Making a presentation before the committee on Monday, Controller of Budget Margaret Nyakangó stated that the counties disclosed pending pensions of Sh11 billion but the firms declared Ksh.85 billion.

However, according to a presentation by the CS, the counties the three pension firms Ksh.90.69 billion as of May 31, 2023.

They owe Laptrust Ksh.33.01 billion and Ksh.3.68 billion to the CPF as of May 31, 2023.

The devolved units owe Lapfund Sh54 billion, comprising principal amount of Sh6 billion and Sh48 billion interests and penalties.

“The schemes are greatly affected by non-remittance and delayed remittance of contributions by county governments and their predecessors, the defunct local authorities,” Njunguna said.

According to the CS, only three counties have cleared their pension arrears and penalties. They are Kajiado, West Pokot and Nyeri.

Some eight counties have made partial payments.

“While they have made some progress in remitting their obligations, there are outstanding amounts that still need to be paid,” he stated.

They include Nyamira, Kakamega, Tana River, Bungoma, Kitui, Makueni, Uasin Gishu and Lamu.

The remaining 36 counties are yet to remit their pension contributions to the schemes.

They are Baringo, Bomet, Turkana, Busia, Elgeyo Marakwet, Embu, Garissa, Homa Bay, Isiolo, Taita Taveta, Tharaka Nithi, Kericho, Kiambu, Kilifi, Kirinyaga, Samburu and Narok.

Others are Kisii, Kisumu, Vihiga, Kwale, Laikipia, Trans Nzoia, Machakos, Wajir, Mandera, Marsabit, Meru, Migori, Mombasa, Murangá, Nairobi, Nakuru, Nandi, Nyandarua and Siaya.