Relief for Kenyans who earn up to Ksh.24K as Uhuru orders cuts to PAYE, VAT

President Uhuru Kenyatta has ordered the National Treasury to move to Parliament and implement a raft of changes including relief on employee tax and value added tax (VAT) as the government delivers its stimulus package to the economy.

“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 on Wednesday.

Among the raft of measures incorporated in the presidential decree include the order on a 100 per cent tax waiver for individuals with incomes lesser than Ksh.24, 000 and the reduction of the Pay as You Earn (PAYE) tax rate to 25 per cent from 30 per cent.

Further the President has ordered for the reduction of resident income tax/Corporation tax to 25 per cent from 30 per cent and the reduction of the turnover tax rate (TOT) from the current three percent to one per cent.

Moreover, the President has requested Treasury to appropriate a further Ksh.10 billion to the elderly, orphans and other vulnerable groups through the State’s cash transfer program to cushion the group from adverse economic effects.

“I recognize the anxiety that this pandemic has caused millions of Kenyan families; fearful of what the future may hold for them and their children, and the possibility of job losses and loss of income weighing heavily on their minds,” President Kenyatta added.

Further to the raft of measures assigned to the National Treasury, the President has requested for the temporary suspension of the listing with Credit Reference Bureaus (CRBs) of any person, small and medium enterprise (SME) and corporate entity whose loan account fall overdue or is in arrears, effective April 1.

The National Treasury has further been instructed to reduce the rate charged on Value Added Tax (VAT) from 16 per cent to 14 per cent effective April 1.

All Ministries and State Departments have meanwhile been ordered to pay at least Ksh.13 billion in verified pending bills to improve liquidity to businesses.

“This is to improve liquidity in the economy and ensure businesses remain afloat by enhancing their cash flows, the private sector is also encouraged to clear all outstanding payments among themselves; within three weeks from the date hereof,” added the President.

The Kenya Revenue Authority (KRA) has further been requested to expedite the payment of Ksh.10 billion in verified VAT refund claims or allow for the offsetting of the charge with withholding VAT in order to improve the cash-flow for businesses.

The second round of stimulus from government follows Monday’s propping of the banking sector by the Central Bank of Kenya (CBK) Monetary Policy Committee which lowered its base lending rate and commercial bank reserve ratio (CRR) to 7.25 percent and 4.25 percent respectively from 8.25 per cent and 5.25 percent respectively in a means to improve the availability of funds to banks for onwards lending.

Further, the CBK improved the tenure of repurchasing agreements (REPOs) from 28 to 91 days to boost liquidity further with the reserve bank seeking to prevent the Covid-19 health crisis from becoming an economic problem.

“Banks are liquid but you could end up getting some pockets of tightness. We wouldn’t want this from becoming a liquidity problem,” CBK Governor Patrick Njoroge said on Tuesday.