Background

The President of Kenya issued a number of relief measures on 25th March 2020 to cushion the tax payers, businesses and investors from the COVID-19 impact. The aim is to increase disposable income for the people of Kenya.

We highlight below the proposed changes;

Income tax changes

Corporation Tax

Reduction of resident corporation income tax from 30% to 25%.

Turnover Tax (TOT)

The TOT was re-introduced in the Finance Act of 2019 and was effective 1st January 2020 at a rate of 3%. The rate has been reduced to 1%.

Value Added Tax (VAT)

The below measures have been introduced

  • A reduction of the current VAT rate of 16% to 14%.
  • KRA has been directed to release verified VAT refunds amounting to Kshs.10 billion within 3 weeks or allow offset of withholding VAT.

Pay As You Earn (PAYE)

Relief has been extended as follows:

  • 100% tax relief for persons earning a gross monthly income of up to Kshs 24,000.
  • Reduction of top Pay-As-You- Earn (PAYE) tax rate from 30% to 25%

Non Tax measures

  • Appropriation of  10  Billion  to  the elderly, orphans and the vulnerable members of society through cash transfers
  • Temporary suspension of CRB listing of new loan defaulters
  • All ministries and departments to pay all verified pending bills to at least Kshs 13 billion within 3 weeks
  • 1 billion health coverage kitty for recruiting additional health workers to manage the spread of the virus.
  • Voluntary reduction of top civil servant salaries beginning with the president.
  • All state and public offices with pre- existing medical conditions and/or aged 58 years and above to take leave or work from home. This excludes personnel offering essential services
  • CBK rate lowered from 8.25% to 7.25% to enable the banks lower their interest rates on new and existing loans
  • Reduction of Cash Reserve Ratio (CRR) from 5.25% to 4.25% providing additional liquidity to banks of Ksh. 35 billion.
  • Flexibility to banks with regard to loan classification and provisioning for loans that were performing as at 2nd March 2020 whose repayment period was extended or were restructured due to the pandemic

The above proposed measures will are effective 1 April 2020 with some requiring parliamentary approval. The move is expected to increase cash flows for businesses and individuals providing much needed relief in these difficult economic times.

For additional information with respect to this tax alert, please contact:

Beatrice Kamau

Outsourced Services Manager

t +254 715 248882 | +254 733 533449
e bkamau@mgkconsult.co.ke