Kenyans will be given tax breaks on their Hustler Fund savings if they leave the money in a newly created government-backed pensions fund for at least five years as part of the State’s plans to boost national savings.
The National Treasury yesterday launched the Kenya National Entrepreneurs Savings Trust (KNest) that will hold the savings of Hustler Fund borrowers as well as voluntary contributions from informal sector workers numbering about 16 million.
KNest has a mandatory savings channel that will anchor the savings component of the Hustler Fund and a voluntary savings channel for those who do not wish to borrow, said the Treasury.
President William Ruto launched Hustler Fund in November last year, giving borrowers low-cost loans out of which five per cent is deducted to go towards their savings.
Borrowers had, however, raised questions over where their savings will be held and how they can access them.
“Mobile Network Operators will go live with the integration to the KNest Pension and Savings Administration System to enable participants to access the savings component through the H-Fund access code *254# as well as the KNest USSD Code *500# for the voluntary savers opting into the scheme directly,” Treasury said yesterday.
Treasury says it will exempt the savings from taxes as well as on any capital gains that the savings will accrue to encourage more individuals to enrol in the pensions scheme. This comes at a time Kenya in January this year raised its capital gains tax from five per cent to 15 per cent.
“The expected tax incentives are tax exemption on contributions (as many members of the scheme will likely be non-formal taxpayers) (and) tax exemption on investment income including capital gains,” said Treasury, “provided funds are maintained for a minimum period of five years.”
The exchequer added that KNest members will be able to view their benefit statements and transactions online and will have access to online retirement calculators and planning tools.
President Ruto early this month launched the second phase of the Hustler Fund, which will give loans of between Sh10,000 and Sh200,000 to businesses, following the relative success of the individual loan product that was launched three months earlier.
Some 19.06 million customers had at the time borrowed Sh21.1 billion from the fund in 33.36 million transactions and have repaid Sh11.8 billion, translating to a repayment rate of 56 per cent.
Treasury says KNest will attain sustainability within three to five years as the savings will be invested in government securities.
This comes at a time when the Head of State has been pushing for the growth of national savings to give the government access to domestic borrowing more cheaply.
This is as employees started making higher contributions to the National Social Security Fund (NSSF) last month after the Court of Appeal threw out the judgment of the Employment and Labour Relations Court on September 19, 2022, which rendered the NSSF Act, 2013 unconstitutional.
Monthly deductions
The NSSF Act, 2013 increased salaried employees’ monthly deductions from Sh200 to Sh600 for the lowest earner and from Sh320 to Sh1,080 for top earners under a graduated scale. The upper limits on contributions are to rise every year.
“KNest is projected to significantly raise the savings rate in the country from the current 16 per cent to more than 40 per cent in the next five years. The effect of increased domestic savings is to enable a systematic reduction in the cost of borrowing,” said Treasury.
Kenya has about 1,076 pension schemes with over 3.2 million members registered with the Retirement Benefits Authority and has contributed aggregate retirement savings of over Sh1.6 trillion.
“The resources available to the government will gradually drive interest rates down thereby reducing the cost of borrowing,” said Treasury. BY DAILY NATION