Treasury ends COVID-19 tax relief measures to recover lost revenues


Treasury ends COVID-19 tax relief measures to recover lost revenues

In Summary

  • Corporate tax for resident entities along with the top individual income tax (PAYE) will revert to a higher 30 per cent from 25 per cent. Meanwhile, the VAT rate will return to 16 per cent from the current 14 per cent.
  • Kenyans earning a gross salary of up to Ksh.24,000 will however continue enjoying government cushioning as the exchequer retains the waiver on all PAYE taxes.
  • The National Treasury is seeking to employ the tax reversals to recoup lost revenues as it projects a Ksh.65 billion revenue hit from the cushioning measures
   

The National Treasury has moved to cut off COVID-19 tax relief measures effective from January, 2021 as it seeks to reinstate lost government revenues.

In a statement to newsroom on Friday, Treasury Cabinet Secretary Ukur Yatani says tax rates for pay as you earn (PAYE) along with value added tax (VAT) will be returning to old rates.

Corporate tax for resident entities along with the top individual income tax (PAYE) will revert to a higher 30 per cent from 25 per cent.

Meanwhile, the VAT rate will return to 16 per cent from the current 14 per cent.

Kenyans earning a gross salary of up to Ksh.24,000 will however continue enjoying government cushioning as the exchequer retains the waiver on all PAYE taxes.

The National Treasury is seeking to employ the tax reversals to recoup lost revenues as it projects a Ksh.65 billion revenue hit from the cushioning measures.

“It is important to note that these are not new tax rates, but just a return to the prevailing tax rate before the onset of the pandemic. This is indeed within the knowledge of all stakeholders,” stated Treasury Cabinet Secretary Ukur Yatani.

The early end to tax relief measures comes even as the country runs up to renewed economic disruptions occasioned by a resurgence in COVID-19 infections.

For instance, business activity over the last month to the end of November has been truncated to a five months low as mirrored by the Stanbic Bank Kenya monthly published Purchasing Managers Index (PMI).

The index shows reduced orders for goods by customers implying lower revenues for enterprises which further have a knock on effect on new job creation for an economy which has since lost more than 1.7 million jobs since the start of the pandemic.

Optimism for growth over the next 12 months has similar been dampened to an all time low as COVID-19 fears persist.

“Containment measures that were re-instilled last month were less stringent than before. However, the pace of the improvement in business activity slowed down partly due to a resurgence in COVID-19 cases. Additionally, firms noted that the reintroduction of lockdowns in parts of Europe also hurt external demand for their goods,” stated Stanbic Bank Fixed Income and Currency Strategist Kuria Kamau.

Nevertheless, the tax reversals are being implemented at the behest of President Uhuru Kenyatta who signaled the end of part of tax relief measures in an address to the nation on September 29.

However, Treasury has brought the end of 14 per cent VAT earlier than the July 1 deadline recommended by the President.

The government has however insisted it continues to cushion Mwananchi through the roll out of the Ksh.58.1 billion stimulus program.

“In spite of the pandemic’s effects, it is noteworthy that the National Treasury has continued to maintain macro-economic stability as evidenced by the prevailing low and stable inflation and interest rates as well as a competitive exchange rate,” added CS Yatani.

It however remains unclear whether the tax reversals can occur within the January 1 timeline as the turnaround in tax rates requires the approval of the National Assembly.

The National Assembly is currently on recess until February 8, 2021.

Treasury can only independently effect changes to VAT.

The reversal of the tax relief measures is expected to be a blow to personal incomes as pay cuts and job losses persist in the economy.

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Story By Kepha Muiruri
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