If a collection account has been removed from credit report will it get effected by the 'last activity date' if a person pays the balance off?

It may.

There is no way to tell what the repercussions will be. If the company (assuming that it is a collection agency and not the original creditor) is willing to take your payment and not update the now non-existant credit listing, then it may have no effect, except to clear your conscience. If it is an original creditor, like a credit card company; their processes of reporting and updating bureaus are so fragmented and automated, they may not be aware of, or able to control, the reporting of information to the bureaus. A paid collection with a recently reported date MAY find its way back onto your credit and impact your credit scores. Technically, the date the account was paid is NOT the date of last activity. However, this error is a common occurence and may happen in your case.