Eight Months Into COVID-19, Kenya Stops COVID-19 Related Tax Relief

No more COVID-19 tax reliefs for businesses in Kenya still looking for more. In a majority vote by the country’s parliament, the series of tax cuts put in place since April to cushion the economy from the impact of the COVID-19 pandemic have been ended. 

Tax law

“I am going to surrender 50,000 shillings more every month. Let it go to the government. But let it be utilized efficiently to deliver services to my people and to all of us,” lawmaker John Mbadi said before voting on the changes.

Here Is What You Should Know

  • The tax cuts were introduced in April, weeks after Kenya reported its first case of the coronavirus. They were targeted at protecting the country which also is East Africa’s richest economy.
  • Now lawmakers said the cuts were not sustainable, reinstating a warning by the country’s finance ministry’s estimate this month that the Kenyan government will have foregone 65 billion shillings ($595.24 million) in revenue from the tax cuts.
  • The implication of this is that a reduction of 5 percentage points to the income tax rate for top individual earners and corporations will be reversed to 30%. The value-added tax rate will also be restored to 16% from 14% during the first phase of the pandemic.
  • However, government voted to keep one of the relief measures. Accordingly, Kenyans earning less than 24,000 Kenyan shillings ($220) will still be granted 100% tax relief.
  • The position of the lawmakers who the tax cut reversal is to the effect that the pandemic had not subsided and Kenyans still needed help.
  • Kenya’s economic output declined in the second quarter for the first time since the 2008 global financial crisis. The tourism and agriculture exports, the main hard currency earners, have taken big hits.

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

A Look At All The Reversals

Exemption of Small Businesses From Tax

Under the Tax Laws (Amendments) Act, small and medium enterprises (SMEs) with annual earnings below Ksh.1 million ($9139) were 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. This was not reversed. Position remains the same. 

Reduction In Value Added Tax

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

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

Reduction In Personal Income Tax (PAYE)

Under the former law, Kenyans earning Ksh. 24000 ($223) and below received a 100% waiver on pay as you earn (PAYE) while earners above the threshold saw their PAYE discounted by 5%. This was not reversed. 

Generally, the maximum tax rate on corporate and personal earnings in Kenya was pegged at 25% during the COVID era for those with annual income above Ksh. 688,000. Before this was 30%. This has now been reversed to 30%. 

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