Kenyans earning below Ksh.24K to get tax relief after MPs give the nod


Kenyans earning below Ksh.24K to get tax relief after MPs give the nod

In Summary

  • Kenyans earning below Ksh.24,000 are expected to see a 100 per cent relief on all of their pay as you earn taxes upon the assent of the Act of Parliament into law.
  • Employees with gross salaries above Ksh.24,000 are expected to see a 5 percent relief on their PAYE as the rate of the monthly charge levy goes down to 25 percent.
  • SMEs are set to be spared from higher taxes in the relief package as the rate of turn over tax drops to one percent.

The National Assembly adopted the 2020, Tax Laws (Ammendment) Bill on Wednesday to end in relief to Kenyans as per Presidential directives issued last month.

The bill which was subject to ammendments by the House National Planning and Finance Committee is meant to cushion Kenyans through downward revisions to both income and vatable taxes.

On March 25, President Uhuru Kenyatta ordered the National Treasury to move to Parliament and enact a raft of changes to tax laws including relief on both Value Added Tax (VAT) as the government sort to shield the economy from the adverse impact of the Covid-19 pandemic.

“In recognition of the extra-ordinary nature of this global tragedy and its enormous local effects, and conscious of the solemn duty of the Government to guarantee the enjoyment of social, civil and economic rights; my Administration has made and will continue to make targeted state interventions to cushion every Kenyan from shocks arising from Covid-19,” President Kenyatta said in a televised address to the nation.

PAYE

Consequently, Kenyans earning below Ksh.24,000 are expected to see a 100 per cent tax relief on all of their pay as you earn (PAYE) upon the assent of the Act of Parliament into law.

Additionally, employees with gross salaries above Ksh.24,000 are expected to see a 5 percent relief on their PAYE as the rate of the monthly charge levy goes down to 25 percent from the initial 30 percent.

Small and Medium Enterprises (SMEs) are set to be spared from higher taxes in the relief package as the rate of turn over tax (ToT) drops from three percent to one percent.

The threshold of TOT has similarly changed with MPs raising the minimum bar for payments to an annual turnover of Ksh.1, 000,000 and a lift on the maximum limit to Ksh.50 million.

The rate of tax on residents’ income/corporation tax is also expected to be revised down by five percent from an initial 30 per cent providing cover to firms on their earnings charges.

Last week, MPs had separately adopted proposed changes to VAT which brought the rate down by 12.5 percent to 14 percent from an original 16 percent, ratifying Treasury’s legal notice on the change passed on April 1.

No new supplements

MPs however thwarted the National Treasury attempts to build in additional ammendments which would have eroded gains made from the presidential directives to spare Kenyans from higher hidden costs on basic commodities.

The Treasury had for instance proposed the elimination of a number of tax exemptions on basic consumer items with the aim of offsetting revenue losses from the reduction of tax rates.

“Considering that tax rates have been reduced, the tax incentives currently available to investors are o longer necessary since it amounts to over-subsidizing companies. In this regard, it is imperative to review the existing tax incentive regime with a view to minimizing distortions in the respective regimes, the Treasury had noted.

The retention of the respective exemptions will maintain costs of common consumer basket items including fuel, LPG, pest control products, agriculture machinery and milk by offsetting proposals to move the items to the vatable goods category.

Further, investors are set to retain their tax free yields from investments in both Infrastructure bonds (IFBs) and green bonds while the rate of withholding tax (WHT) charged on dividends due to foreigners has been retained at 10 per cent to encourage investments in the country.

Moreover, investments made in the National Social Security Fund (NSSF) will remain exempt of tax including those made via collective investment schemes preserving pensioners’ funds from further erosion.

Additional proposals by the Finance and National Planning Committee to cushion the economy further were however stopped in their tracks by the House due to lack of requisite public participation.

The proposals had sought to bar employers from firing staff during the pandemic while obligating banks to restructure all of their existing contractual obligations with clients.

Further, the proposals would have forbidden the attachment of collateral for credit default during the pandemic.

The Act of Parliament now awaits presidential assent to become law.

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Story By Kepha Muiruri
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