Background

President Uhuru Kenyatta on Tuesday 30th June 2020 signed into law the 2020/21 Budget, the 2020 Finance Bill and the 2019/20 Third Supplementary Budget.

The 2020 Finance Bill which has now become law contains several amendments targeted at cushioning Kenyans from the adverse effects of the Covid-19 pandemic.

The third 2019/20 supplementary budget of Sh18.4 billion was approved by the National Assembly to address the Covid-19 health crisis and other emerging challenges.

The 2020/21 Budget of Kes 3.2 trillion contains a Sh56.6 billion post Covid-19 economic stimulus package and an allocation of Sh128.3 billion to the Government’s Big Four agenda.

There has been very minimal alterations on the initial proposals to the Finance Bill 2020 as presented to the parliament with notable areas being on the implementation dates.

This brief summary of the 2020 Finance Act covers the following areas;

  1. Effective dates
  2. Amendments under VAT Act 2013
  3. Amendments under the Excise Duty Act
  4. Amendments under the Tax Procedures Act
  5. Amendments under The Tax Tribunals Act 2013, The Kenya Revenue Authority Act and The Insolvency Act 2015

Effective Dates

Sections (2, (3, (4, (5, (6, (7, (8((a), ((9, (16, (18(and (19, -the 1st of January 2021.

Tax Details Effective Date
Residential Rental Income Tax Upper threshold increased from 10 million to 15 million p.a. 1st January 2021
Minimum Tax 1% Payable by all companies regardless of whether they make profit or not.  Due by 4th,6th,9th and 12th month 1st January 2021
Digital service Tax 1.5% of gross transaction value  payable by a person whose income from services is derived from or accrues in Kenya through a digital market place 1st January 2021
Deletion of allowable expenses -Capital expenditure incurred for purposes of listing on any securities exchange

-Capital expenditure and legal costs for listing in the securities exchange operating in Kenya without raising additional capital

-Club subscriptions paid by an employer on behalf of an employee

– Capital expenditure, legal costs and other incidental costs relating to authorization and issue of shares

-Any entrance fees or annual subscriptions paid during that year of income to a trade association

-Provisions on Home Ownership Savings Plan(HOSP)

1st January 2021

 

All other sections, -Effective immediately on the date of assent including;

Tax Details Effective Date
VAT Act 2013 Claims on Input tax- a person claiming input tax will only be able to do so, if the registered supplier has made a corresponding declaration of the output tax in their return. 30th  June 2020
Income Tax Exemptions Bonuses, Overtime and retirement benefits-to employees whose taxable employment income before bonus and overtime allowances does not exceed the lowest tax band 30th June 2020
Transitional provision for Companies under SOFA(Special Operating Framework Arrangement) provisions allow companies/projects currently under SOFA to continue enjoying the VAT exemptions on goods imported or purchased locally for the remaining period of the agreement 30th June 2020

 

Sections (13((a) ((i) (and ((iv), (13((d), (14((a)(and(22((a)((i) -on 1st July of 2021

Tax Details Effective Date
VAT

(Changed from exempt to 14% Standard rate)

Helicopters of an unladen weight not exceeding  2,000 kg 1st July 2021
Helicopters of an unladen weight exceeding 2,000 kg.
Aero planes and other aircraft, of an unladen weight not exceeding 2,000 kg.
Aircraft launching gear and parts thereof; deck- arrestor or similar gear and parts thereof.
Air combat simulators and parts thereof
Other ground flying trainers and parts thereof
Tractors other than road tractors for semi-trailers.
Hiring, leasing and chartering of helicopters

 

VAT Act 2013 Amendments

  • The Act has exempted the following items, effective from 30th June, 2020:
    • Maize (corn seeds) seeds of tariff no. 1005.10.00
    • Ambulance services
  • The supply of maize (corn) flour, cassava flour, wheat or meslin flour and maize flour containing cassava flour is suspended from exemption for a period of 6 months effective from 30th June, 2020. The exemption status will recommence from 1st January 2021.
  • The Act further deleted the following items from the exemption schedule to make them taxable at the standard rate of 16%:
  • The 14% Standard VAT rates on the following items became effective on 30th June 2020.
    • Aluminum pilfer proof caps with EPE liner. 30th June 2020
    • Specialized equipment for the development and generation of solar and wind energy
    • Goods of tariff of no. 4011.30.00 (Pneumatic Tyres) 30th June 2020
    • Taxable goods purchased by manufacturers or importers of clean cooking stoves
    • Stoves, ranges, grates, cookers, barbeques, braziers, gas-rings, plate warmers and similar nonelectric domestic appliances.
    • One personal motor vehicle, excluding buses and minibuses of seating capacity of more than eight seats, imported by a public officer returning from a posting in a Kenyan mission abroad and another motor vehicle by his spouse and which is not exempted from Value Added
  • Amendments to the Second Schedule – Zero-rated Supplies
    • The supply of maize (corn) flour, cassava flour, wheat or meslin flour and maize flour containing cassava flour will be zero rated for a period of 6 months from 30th June 2020.
    • The Act has deleted the following items from the zero-rating schedule
Item Description Effective Dates
LPG Gas including propane 1st July 2021
Raw materials –for  (electric accumulators and separators including lead battery separator rolls whether or not rectangular or square supplied to manufacturers of automotive and solar batteries in Kenya) 30th June 2020

 

Amendments to the Excise Duty Act, 2015

  • Definitions
    • License: definition to include a license issued for any activity in Kenya for which the Commissioner, by notice in the Gazette, may impose a requirement for a license
    • Annual Inflation adjustment rate: provisions relating to annual inflation adjustment shall now require that the Commissioner must seek an approval from the Cabinet Secretary for the National Treasury and Planning in order to adjust the specific rates of excise duty.
  • Excise duty rates
    • Reducing the alcoholic strength of spirituous beverages from 10% to 6%. (Beer, Cider, Perry, Mead, Opaque beer and mixtures of fermented beverages with nonalcoholic beverages and spirituous beverages of alcoholic strength not exceeding 10%”)

Amendments to the Tax Procedure Act

  • Voluntary Disclosure programme (VDP)
    A taxpayer shall willingly disclose tax liabilities that were previously undisclosed to the Commissioner for the purpose of being granted relief of penalties and interest of the tax disclosed.
    The VDP Programme shall operate under the following rules:
    • Open for 3 years effective 1st January 2021
    • Disclosures will be for a period of 5 years prior to 1st July 2021
    • On successful application remission on penalties and interest shall be as follows:
  • Full disclosure arrears paid in the 1st year, 100% remission on penalties
  • Full disclosure arrears paid in the 2nd year, 50% remission on penalties
  • Full disclosure arrears paid in the 3rd year, 25% remission on penalties
  • Non-eligible taxpayers for VDP
  • Those under Audit or Investigations
  • Those already notified of a pending audit or investigation by the commissioner
  • Appointment of digital service tax agents
    The Act has empowered the Commissioner to appoint an agent for the purposes of collection and remittance of the Digital Service Tax (DST).

Miscellaneous fees /Levies amendments

Item Description Levy
IDF fees Imports on Goods under the EAC duty remission scheme -10,000 specific rate or

-1.5% Advalorem on custom value

EPZ Goods Additional duty on goods entered for home use from an Export Processing Zone enterprise -2.5% of customs value over and above the import duties under the Miscellaneous fees and levies Act
Exemptions on IDF Fees -Aircrafts- weight not exceeding 2,000kg and Helicopters (Tariff Heading 8802.11.00 and 8802.12.00);

-Goods of a value not less than 200 million that the CS determines to be of public interest or meant to promote investment

-Imported goods for implementation of projects under SOFA(Special Operating Programme Arrangement) with the Government.

 

 

Exempt

Exemptions on RDL(Railway Development Levy) -Goods of a value not less than 200 million that the CS determines to be of public interest or meant to promote investment

-Currency notes and coins imported by the CBK

-Equipment, machinery and motor vehicles for the official use by the Kenya Defense Forces and National Police Service

 

 

Exempt

 

Amendments under The Tax Tribunals Act 2013, The Kenya Revenue Authority Act and The Insolvency Act 2015

Act Details Amendment
Insolvency Act 2015 For companies undergoing liquidation All amounts held on behalf of Kenya Revenue Authority by banks appointed as agents for revenue banking services, shall, at the point of receivership or liquidation of the bank, rank among the preferential claims just like other statutory obligations owed to the government
Tax Appeals Tribunals Act With regard to documents presented to the tribunal by an appellant The Act to restrict documents presented by an appellant to the Tax Appeals Tribunal to those which had been provided to the Commissioner during the objection process.
The Kenya Revenue Authority Act -Capacity building and training

 

 

 

 

 

 

 

 

-Limitations of Actions

-The Act amends the KRA Act to provide for an additional function of the Authority as capacity building and training. To give effect to this, the KRA Board has been empowered to make regulations with respect to capacity building and training.

-The Act has provided that a legal action against the Authority suits shall not be instituted unless –

  • It is commenced within 36 months after the act, neglect or default complained of
  • For continuing injury or damage, within six months after the cessation of the act
  • NOTICE, At least one month written notice served upon the Commissioner General specifying the particulars of the claim, intention to commence the action or legal proceeding.

 

For more information contact;

Beatrice Kamau

Outsourced Services Manager

t +254 715 248882 |  +254 733 533449

bkamau@mgkconsult.co.ke