COVID-19 tax reversals to complicate tax filings for companies: KMPG

The reversal of COVID-19 tax cushioning measures is expected to lead to complications in accounting for company tax filings for the year.

This is according to a new analysis by tax consulting firm KPMG which has reviewed the proposals carried in the Tax Laws (Amendment) [No.2] Bill, 2020.

Firms who have since filed returns at the prevailing rate of 25 per cent will for instance be required to make new provisions to cover for the looming change in the rate of tax to 30 per cent effective January 1.

“The proposed provision will introduce challenges during the computation of the 2020 annual tax liability and filing of tax returns given that it is expected that resident companies will be required to apportion their income prior to determining the annual tax position,” KPMG states in the report.

“The provision also appears to retrospectively change the application of the 25 per cent rate especially for taxpayers who have already filed their tax returns based on the 25 per cent tax rate.”

Further, KPMG notes the proposed amendments will serve to increase the burden of tax on entities under the current tough operating environment with firms already remitting a higher 15 per cent of dividends paid out to non-residents.

“The proposed increase in the corporation rate will mean that despite the current economic challenges, companies will need to dig deeper to settle their tax liabilities,” the report adds.

Kenyans earning gross salaries below Ksh.24,000 will nevertheless mark gains from the amendments which intend to leave them exempt from paying income tax beyond the December 31 deadline.

Additionally, manufacturers of supplies consumed in aid funded project will mark relief as they become exempt from value added tax (VAT) upon the bill’s adoption.

The National Assembly is expected to give the final nod to the desired tax reversals on Tuesday next week.

Earlier this week, the National Assembly Committee on Finance and National Planning held public consultations as part of its review of the bill after which it will make recommendations to MPs on the adoption or retention of cushioning measures.

The committee is facing pressure to retain the measures alongside new proposals to reverse past tax hikes.

Stakeholders from renewable energy are for instance eyeing a reversal of VAT on clean cooking stoves and part of solar products which came into effect through the 2020, Finance Act.

According to the Chairperson of the Kenya Renewable Energy Association (KEREA) Kamal Gupta the products remain essential for the conversion of households into using clean energy sources.

“Solar home systems and clean cooking products (stoves and biogas) are essential in converting rural populations from over reliance on toxic fuels such as paraffin and firewood. This is key for preservation of individual health and reduction in environmental degradation. The proposed clauses will fast track Kenya’s international commitments on reduction of carbon emissions and universal access to Energy,” he said.