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President Uhuru Kenyatta’s fiscal plan needs parliamentary approval

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Tax experts state that President Uhuru Kenyatta’s fiscal plan needs parliamentary approval before it can be implemented.

“The President’s proposals can only be implemented after obtaining approval from the National Assembly through deliberation and approval of a relevant bill, as per requirements of the Kenyan Constitution,” said Mr Clive Akora, a partner, Tax and Regulatory Services at KPMG Kenya.

It is expected that the National Treasury will draft the appropriate recommendations to be included in an omnibus bill to be presented to the National Assembly for approval and subsequent presidential assent.

“Given the urgency of the matter at hand, we expect that the enactment of the relevant legislation will be expedited,” said Mr Akora.

With the number of confirmed corona virus-infected persons rising by the day, the Kenya Government has come up with a fiscal rescue package to cushion individuals and business from the negative impact of the pandemic.

On 25 March 2020, President Kenyatta outlined various tax interventions the government intends to make to cushion the country against the economic effects of the COVID-19.

These measures are to take effect on April 1st, 2020, implying that Treasury and parliament must move quickly to effect these tax proposals.

In this fiscal plan is a proposal to remove income tax for all those earnings gross monthly income of less than KSh 24,000.

Tax charged on these ‘low-income earners’ is approximately KSh 1,700 per month. The Government has also proposed to reduce the Pay-As-You-Earn(PAYE) tax from 30 per cent to 25 per cent.

“It is not clear whether persons earning between KSh 24,000 and the top tax rate threshold of KSh 47,059 will get tax relief on their income. In our view, the best way to provide the tax incentive would be to apply the 5% PAYE rate reduction across all the PAYE tax bands,” said Mr Akora.

There is also a proposal to reduce resident corporate income tax from 30% to 25% to allow companies additional resources to sustain their operations during these harsh economic times.

From the aviation industry, logistics, floriculture and horticulture to construction and real estate, a number of firms have been forced to scale down or close business.

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Tax experts at KPMG maintain that reduction in corporation tax may not yield much in the short term unless this tax incentive is sustained for a number of years beyond the present crisis.

Reduction of the Turnover tax rate from 3% to 1% is aimed at cushioning small business which will be affected by lock-downs of supply chain disruptions.

Another fiscal measure, which takes effect on 1st April 2020 is the reduction of VAT from 16% to 14%.

“The rate of VAT influences consumer behaviour as it has a direct impact on the price consumers pay for goods and services. It is expected that suppliers will pass on the
reduction in the VAT rate to consumers through reductions in the price of goods and services,” said Mr Akora.

The President has also directed Kenya Revenue Authority (KRA) to expedite the payment of verified VAT refund claims amounting to KSh 10 Billion within the next 3 weeks or in the alternative, allow for offsetting of withholding VAT to improve cash flows for businesses.

According to Mr Akora, exporters are some of the worst affected by the global shutdown. Thus fastracking VAT refunds will provide some welcome respite for these businesses.

Apart from the new tax measures, President Kenyatta directed that Ministries, State Departments and Government agencies settle KSh 13 billion in pending bills, owed to suppliers, within three weeks.

Other measures include restraining Credit Reference Bureaus from listing affected loan defaulters, and release of KSh 10 billion as cash transfer to the old and vulnerable members of society.
Treasury has also been directed to allocate KSh 1 billion for recruitment of additional medical personnel.

RELATED:

Kenya Govt Unveils Measures to Curb Covid19 Economic Impact



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