Tax Laws (Amendment) Act 2020 (the Act) was assented to by the President on 25/05/2020.
Key changes include
- doubling tax free employment income
- increasing tax bands by about 40%
- reducing highest tax rate
- cutting by half most investment deductions
- widening withholding tax scope
- scrapping tax exemptions for parastatals.
The amount of personal relief has been increased from Kshs.16,896 p.a to Kshs. 28,800 p.a.
The rate of tax in the highest bracket has been reduced from 30% to 25% and the income subject to tax in the highest bracket has been increased from Kshs. 47,059 to Kshs. 57,333.
Pension withdrawals or from the NSSF before the expiry of 15 years from the date of joining the scheme has been aligned to new PAYE tax rates. On the other hand, any withdrawal from the same after the expiry of 15 years from the date of joining the scheme for amounts exceeding Kshs 1.2 million, has been reduced from 30% to 25%.
Qualifying interest refers to interest received by a resident individual from commercial banks or a financial institution licensed under the Banking Act, the Central Bank of Kenya (CBK) and a registered Building society. Wht on qualifying interest is final.
The Act has expanded the definition to include all interest received by a resident individual. This is a positive development as it will encourage investment by individuals in various interest bearing instruments.
WITHHOLDING TAX on NONE Resident.
The Act has introduced withholding tax on payments made to a non-resident person on account of:
- Sales, promotion, advertising and marketing services
- Transportation of goods excluding air and shipping transportation services
- Reinsurance premiums except for reinsurance premiums in respect of aircraft
The withholding tax rate is 20% on the gross fees while for reinsurance premiums at 5%.
In addition, the Act has increased the withholding tax rate for dividends paid to a nonresident person from 10% to 15%.
ELECTRICITY REBATE SCRAPPED
The Act repeals the 30% electricity rebate incentive to manufacturers that was introduced in Jan 2019 by the FA, 2018.
CORPORATE TAX RATES
The Act also has repealed the reduced corporate income tax rates in relation to:
- Companies whose shares are listed rates ranging from 20% to 27% for a defined period following the listing of the shares.
- Plastics recycling plant which were subject to tax at the rate of 15% effective 2019.
- Corporate tax rates
The Act has repealed the Second Schedule to the Income Tax Act (ITA) and replaced it. Under the new schedule:
- Capital allowances will be claimed over a longer period.
- Investment deduction has dropped from 100% to 50%
- The investment deduction of 150% outside certain municipalities has been abolished.
- Hospital equipment separated from equipment and to be depreciated at 50% on a re
TURNOVER AND PRESUMPTIVE TAX
Presumptive tax @15% of licence to counties has been abolished.
The turnover tax rate has been reduced from 3% to 1%. In addition, the annual income threshold for turnover tax has been set at between 1 million and 50 million. Before it was for income below 1 million
Turnover tax will also apply to incorporated companies. Previously this was not the case.
VALUE ADDED TAX (VAT)
VAT BASE ON FUEL INCREASED
The Act amends the definition of the value of supply of petroleum products to include excise duty, fees and other charges. The change will increase the taxable value of the products and hence the VAT amount. Effective date: 15 May 2020.
CREDIT NOTES ON LITIGATION
The Act allows businesses to issue a credit note within 30 days after the determination of a commercial dispute in court relating to the price payable.
BAD DEBTS REFUND CLAIM PERIOD REDUCED
Application period from five to four years if the debt remains unpaid for a period of three years from the date the supply was made.
UN REGISTERED PERSONS TO KEEP RECORDS
Previously, records were kept for a period of five years now its 4yrs and be ready to provide such records to authorized officials at all reasonable times for inspections.
SERVICES ON INFRASTRUCTURE ON 100 ACRES
Taxable services provided for direct and exclusive use in the construction and infrastructural works in industrial parks of one hundred acres or more on the recommendation by the Cabinet Secretary responsible for Industrialization including those outside special economic zones approved by the Cabinet Secretary for the National Treasury
EXEMPT - 4 BILLION LPG INVESTMENT
Taxable services procured locally or imported for the construction of LPG storage facilities with a minimum capital investment of four billion shillings and a minimum storage capacity of a total value of fifteen thousand metric tons.
EXEMPT - TRANSFER TO REITs
Asset transfers and other transactions related to the transfer of assets into real estate investment trusts and asset backed securities
Services imported or purchased locally for direct and exclusive use in the implementation of projects under special operating framework arrangement with the Government
TAX PROCEDURES ACT
The Act has increased the time limit for the Commissioner to issue a private ruling from 45 days to 60 days on receipt of an application by a taxpayer. The Act has also repealed the requirement by the Commissioner to publish a private ruling.
TAX BASE EXPANDED
The Act has amended and deleted "financial services" replacing it with licensed activities. This opens other non financial services to be subject to excise duty.
Goods imported or purchased locally for direct and exclusive use in the implementation of projects under special operating framework arrangements with the Government
MV FOR A RETURNING PERSON
One personal motor vehicle, excluding buses and minibuses of seating capacity of more than eight seats, imported by a public officer returning from a posting in a Kenyan mission abroad and another motor vehicle by the spouse and which is not exempted from Excise Duty under the Second Schedule
IMPORTED GLASS BOTTLES
Paragraph 1 of Part I of the First Schedule has introduced excise on imported glass bottles (excluding those for packaging of pharmaceutical products) in the list of excisable goods at an excise duty rate of 25%.
This change is expected to encourage the local manufacture of glass bottles by levying excise duty tax on imported glass bottles. Effective date: 18 March 2020
MISCELLANEOUS FEES AND LEVIES
RAILWAY DEVELOPMENT LEVY FUND
The Act has amended scope of utilization of the funds raised through collection of Railway Development Levy (RDL) on imported goods to include operation of the standard gauge railway network to facilitate transportation of goods.
Previously, the funds were ring-fenced towards the construction of the standard gauge railway network.
PROCESSING FEE ON DUTY FREE MOTOR VEHICLES
The Act has introduced KES10,000 (≈ USD 100) processing fees of on motor vehicles excluding motorcycles imported or purchased duty free.
RAILWAY DEVELOPMENT LEVY
Introduce RDL on the following items which were previously exempt:
- Raw materials for direct and exclusive use in construction by developers or investors in industrial parks of one hundred acres or more located outside the municipalities of Nairobi and Mombasa
- Goods imported for the construction of liquefied petroleum gas storage facilities
- Goods imported for implementation of projects under special operating framework arrangements with the Government
KENYA REVENUE AUTHORITY ACT
BANKS APPOINTED AS ENFORCEMENT AGENTS
The Act has amended the Kenya Revenue Authority Act to empower the Commissioner to appoint a person registered under the Banking Act to act as an agent for revenue banking services through an agreement. Such a person will be required to submit the funds collected to the designated CBK account within two days.
Failure to submit the funds collected penalty of 2% of the amount collected compounded daily for the period the funds are not submitted to the Central Bank. This is meant to enhance the collection of revenue for the Government.