Kenya Exempts Small Businesses From Tax, Cuts Corporate Tax Rate From 30 To 25% 

Kenya is sending signals that it is ready to rebuild its economy post-pandemic. President Uhuru Kenyatta has signed into law a corporate tax rate cut and other tax amendments. The Tax Laws (Amendments) Bill was presented to the President for signing by National Assembly Speaker Justin Muturi following its passage in Parliament. 

President Uhuru Kenyatta
President Uhuru Kenyatta

“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.

Here Is All You Need To Know

Corporate Tax Cut

  • The new law has reduced the rate of tax paid by companies in Kenya from 30 percent to 25 percent per annum. This new change takes effect from the 2020 financial year. This now makes Kenya the country with the lowest tax corporate rate in the whole of East Africa.
  • However, it should be noted that new corporate tax regime only applies to companies resident in Kenya. Non-resident tax rate, that is tax rate targeted at companies with their branches in Kenya or foreign companies that have their permanent offices in Kenya remains at 37.5%. 

Read also:Kenyan And Nigerian Startups Selected For Google’s Accelerator Program On Sustainable Development Goals (SDGs)

VAT rate across select African countries. Source:-GSMA

Read also: Finding Customers In The Time Of Coronavirus: What Startups In Africa Can Do To Survive

Exemption of Small Businesses From Tax

Under the new Tax Laws (Amendments) Act, small and medium enterprises (SMEs) with annual earnings below Ksh.1 million ($9139) have been exempted from tax, while those from Ksh.1 million ($9139) to Ksh. 50 million ($465,983) now have the turnover tax rate reduced to one percent from the previous three percent.

Reduction In Value Added Tax 

Kenya’s new tax law also saw that reduction from previous 16% to a new 14% of value-added tax in line with the cushion measures. However, despite the reduction, new sectors such as insurance and security brokerage services have been included in the VAT tax net. 

Reduction In Personal Income Tax (PAYE) 

Under the new law, Kenyans earning Ksh. 24000 ($223) and below will receive a 100% waiver on pay as you earn (PAYE) while earners above the threshold will see their PAYE discounted by 5%.

Generally, the maximum tax rate on personal earnings in Kenya is now 25% for those with annual income above Ksh. 688,000. Before this was at 30%.

Read also:Kenyan Startup Tala Launches A $5.7 Million Fund To Help Kenyans Cope With Covid-19

This has the net implication of making more money available to salaried workers, whether local and expatriate staff.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer