FINANCE BUDGET 2020/21
STIMULATING THE ECONOMY TO SAFEGUARD LIVELIHOODS,
JOBS, BUSINESS AND INDUSTRIAL RECOVERY.
The Kenya Finance budget 2020/2021.
The financial and tax highlights from the budget speech as presented by
Cabinet Secretary for National Treasury and Planning.
- Employees earning a gross salary of Kshs 24,000 will receive a 100% tax relief.
- The maximum PAYE tax band has been reduced from 30% to 25%.
- The resident corporate tax has been reduced from 30% to 25%.
- For the micro, small and medium enterprises, Turn Over Tax has been reduced from 3% to 1% with the threshold for qualifying increased from Kshs 5 Million to Kshs 50 Million.
- The VAT was reduced from 16% to 14% with the medicaments being exempted from VAT.
- For VAT refunds amounting to Kshs 10 Billion, KRA shall expedite on processing and paying the same.
- The Central Bank Rate has been lowered from 8.25% to 7.0%.
- The cash reserve rate has also been lowered from 5.25% to 4.25%.
- The government convened all the commercial banks and had an agreement allowing the banks to restructure the non-performing loans as a result of the covid-19 pandemic for its borrowers and extending their payment periods.
- There is an order to temporarily suspend the listing of individuals, MSMEs and corporate entities on the Credit Reference Bureau.
- Government provided Kshs. 13.1 billion to settle verified pending bills owed by Ministries and the Departments. The Government allocated Kshs 1 Billion to recruit health workers.
- The Government allocated Kshs 400 Million for food and non-food commodities for affected households.
- The government rolled out a Covid-19 Emergency Response kitty to receive voluntary donations and contributions from the well-wishers.
- The government also rolled out the ‘Kazi Mtaani Programme’ designed to improve public hygiene standards and so far, 26,000 youths have been engaged.
THE BUDGET ANALYSIS
Inside the 2.7 trillion
- Sound macroeconomic policy framework to support a higher sustainable economic growth that will address the challenges of poverty, unemployment and income inequality;
- Adequate local and foreign resource mobilization to ensure sustainable funding of our development programmes;
- Enhancing the role of the private sector in the economy, including financing infrastructure projects from diverse sources such as Public Private Partnership and lease financing;
- Supporting Micro, Small and Medium Enterprises by facilitating access to adequate finances through the Credit Guarantee Scheme;
- Full and timely implementation of the Economic Stimulus Programme which will create jobs and stimulate businesses;
- Investment in ICT and digital infrastructure to support the use of digital platforms to facilitate e- commerce and efficient delivery of public services;
- Promotion of local production processes and domestic supply value chains;
- Enhancement of disaster risks management systems;
- Improvement of social-protection through targeted policy interventions and programmes; and
- Strengthening Monitoring and Evaluation System for quality outcomes of the projects
The Eight Point Economic Stimulus Program.
MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)
AGRICULTURE & FOOD SECURITY
ENVIRONMENT, WATER & SANITATION FACILITIES
Fiscal Projections for the Budget 2020/21
|Big Four Agenda||Kshs 128.3 billion|
|Universal Health Coverage||Kshs 111.7 billion|
|Affordable Housing||Kshs 15.5 billion|
|Manufacturing||Kshs 18.3 billion|
|Food and Nutrition Security||Kshs. 52.8 Billion|
|Infrastructure||Kshs. 172.4 billion|
|Security and Protecting Borders||Kshs. 167.9 billion|
|Education System||Kshs. 497.7 billion|
|Vulnerable members of the society||Kshs. 26.6 billion|
|Equity, Poverty Reduction, Women and Youth Empowerment ( NYS)||Kshs. 64.229 billion|
|Information Communication Technology ( digital economy)||Kshs. 14.9 billion|
|Sports, Arts and Social Development Fund||Kshs. 14.0 billion|
|Tourism Promotion Fund||Kshs 2.5 billion|
|Tourism Fund||Kshs 3.8 billion|
|Environmental Protection, Water and Natural Resources||Kshs. 98.1 billion|
|Ethics and Anti-corruption||Kshs. 20.2 billion|
|Judiciary||Kshs 18.1 billion|
|Parliament||Kshs 38.3 billion|
|County Governments||Kshs. 369.9 billion|
|Nairobi Metropolitan Services||Kshs. 26.4 billion|
TAX PROPOSALS AND MISCELLANEOUS AMENDMENTS
Income Tax Provisions
Residential Rental Income
The Cabinet Secretary proposes to increase the residential rental income tax maximum threshold from Kshs 10 Million to Kshs. 15 Million.
From 1 January 2016, the government introduced a simplified income tax regime for landlords with residential incomes between 144,000 to 10 Million per year. With the threshold being increased to Kshs 15 Million, this is a welcome move especially after the recent directives by the government encouraging landlords to waive rents for their tenants who could not afford rent as a result of the Civid-19 pandemic.
The Cabinet Secretary proposes to introduce minimum tax at 1% which will be payable by companies that declare losses. Minimum tax will be payable at 1% rate on the gross turnover.
In countries like Tanzania and Nigeria, there are such similar regulations that tax entities that have been making losses for a number of years. However, there are policies and grace periods given to starting companies for a period of between 1 to 5 years of operation since inception. With a benchmarking from the other countries, a 1% is quite on the higher end and thus more punitive. In as much as the introduction of minimum tax is aimed at taxing loss making businesses and expand the revenue channels for the government, It is absurd that this provision is introduced when the covid-19 pandemic has adversely affected many businesses. It is quite disturbing that there are other tax incentives such as capital deductions that have been allowed by the Income Tax Act, whereas on the other hand, the government is taxing these entities through minimum tax. It is our urge that this provision is put in halt and a further benchmarking is done so that more policies regarding the same can be formulated for effectiveness.
Digital Service Tax
The Cabinet Secretary proposes to introduce Digital Service Tax on income deemed to be derived in Kenya through a digital marketplace. The digital service tax will be applicable at the rate of 1.5% on the gross transactional value withheld at the point of making a payment to the service provider.
Taxation of income through the digital marketplace was introduced by the Finance Act, 2019 which was subject to further regulations from the CS for National Treasury for effective implementation by the taxpayers. However, with the delays in publishing there regulations indicate how difficult it is going to be in implementing the taxation of incomes via digital market place. With the recent trends after the effects of the Covid-19 pandemic, most businesses have switched to rely mostly on online business transactions which have been completed via a digital marketplace. However, with this provision, the government intends to capitalize on the digital transformation for many businesses and thus increase in their revenue collection. This provision is not clear on how the tax will be collected and remitted and the ultimate due dates for the same. As much as we expect further guidelines in order to ensure seamless implementation of these provisions, this will definitely bring an additional tax liability to most businesses that seal their transactions via digital marketplace.
Value Added Tax Provisions
Voluntary Tax Disclosure Program
|Standard Rate Supplies to Exempt Supplies|
|Item||Proposed Rate||Current Rate|
|Maize or corn seeds||Exempt||14%|
Tax Procedures Act
Voluntary Tax Disclosure Program
The Cabinet Secretary proposes to introduce a Voluntary tax Disclosure Program for a period of three years for tax liabilities accrued within the last five years for taxpayers who inadvertently made omissions in their tax returns. Taxpayers volunteering for this program will be waived of penalties and interest from non-compliance on the tax disclosed after payment of the principal tax.
It is understood that this provision is aimed at enhancing compliance and that the Kenya Revenue Authority does collect the outstanding tax arrears from the taxpayers. However, this tax amnesty to the local taxpayers is a welcome move considering the penalties and interest charges will be waived under this program.
Public Roads Toll Act
Grounds for Tax Appeals
Miscellaneous Fees and Levies Act
Import Declaration Fees and Railway Development Levy (IDF & RDL)
The CS seeks to boost the budget allocations to the Kenya Defence Forces by proposing to exempt from the Import Declaration Fee and Railway Development Levy on all goods, including materials, suppliers, equipment, machinery and motor vehicles imported for the official use by the National Police Service and the Kenya Defence Forces.
Exempting these goods and supplies from the IDF and RDL is a welcome move since this reduces the cost of importation and thus boosting the security system of the country through the National Police Service and the Kenya Defence Forces.