The Tax Law Amendment Bill comes with a wide array of tax reliefs that will see many companies and individuals benefit.

Nevertheless, this amendment bill comes with other measures that are meant to increase the revenue generating channels and help the government sustain its operations. It is understandable that the government has frozen some of its operations in order to channel the
funds into the fight against the emergence of the Covid-19 in the country. However, some of the proposals will see that the people experience tougher times ahead.

Income Tax Act

Turnover Tax at 1%

The Bill proposes to reduce the Turnover tax rate from 3% to 1%. The Bill further proposes to extend the qualifying threshold for persons with annual turnover between Kshs 500,000 to Kshs 50 Million from the current limit of Kshs 5 Million. The Bill also proposes to eliminate presumptive tax applicable to small and medium enterprises.

Our Opinion
This is a welcome move since it shows how concerned the government is in protecting the business operators in micro, small and medium enterprises. This will encourage entrepreneurs and small scale investors to establish new companies for their business operations.

Taxation of State Corporations

In order to increase the revenue and the tax bracket, the Bill proposes that state corporations for Agriculture and Food Authority will now pay taxes on their incomes. They include Kenya Tea Board, Kenya Pyrethrum Board, Kenya Sisal Board, Kenya Dairy Board, National Irrigation Board, Kenya Cotton Board, Horticultural Crops Development Authority, Pineapple Development Authority and the Kenya Post Office Savings Bank.
The Bill further proposes that the Agricultural Society of Kenya will remit tax on any exhibitions and shows done in the country.

Our Opinion
This is a welcome move since it shows how concerned the government is in protecting the business operators in micro, small and medium enterprises. This will encourage entrepreneurs and small scale investors to establish new companies for their business operations.

Liquefied Petroleum Gas (LPG)

The Bill proposes that the Tax holidays as provided by the Income Tax Act will also come to an end for LPG gas storage facilities with a capital investment of Kshs 4 Billion and a storage of 15,000 metric tons.

Our Opinion
With the increased eye for oil extraction and exploration in the East African region, this proposal will have many investors opting for explorations in other countries that have better tax reliefs for LPG operators in the petroleum and mining industry. The LPG industry is among those that have been greatly hit by the covid-19 pandemic. It is our opinion that the government is considerate of the same and retains the tax holidays with an aim of assisting the players to get back at their feet sooner

Bad debts no longer deductible

In the past, businesses could deduct bad debts after qualifying conditions as provided by the Income Tax Act alongside other expenditures. However, this Bill intends to make bad debts non-deductible by deleting this clause

Our Opinion
Deleting this clause will come as a heavy hit to many. For instance, corporates operating in the banking sector and other financial institutions will not be able to claim any on account of non-performing loans.

In addition, this comes at a time when many entities have been greatly hit by the effects of the Covid-19 pandemic, resulting to losses and even indefinite winding up and thus resulting to credit restructuring for those adversely affected.

With considerations to the above, we urge that the parliament does reconsider the same and restates the provision that allows bad debts to be deductible upon meeting the prescribed conditions.

Electricity Rebates

The Bill proposes to scrap away the 30% electricity rebate recently introduced to manufacturers.

Our Opinion
This electricity rebate was introduced to cushion the manufacturers against the high electricity costs and support manufacturing as one of the Big 4 Agenda. Nevertheless, this will be a hit to the manufacturers with the government eyeing a move to increase its revenue collection. The electricity cost is still high among many manufacturers. It will be considerate if the government retains the status quo of the electricity rebate for longer period until electricity and energy sector is diversified, affordable to many and easily accessible.

Personal Expenditure that are Capital in Nature Disallowed

The Bill proposes to scrap away any deduction of capital expenditure incurred by a person on the construction of a public school, hospital, road or any similar kind of social infrastructure while computing their tax liabilities.

Our Opinion
It is our understanding that expenses that are capital in nature, such as roads, public schools among others are usually a contribution meant to support the whole society and improve their social lives. The move to disallow personal expenditure that are capital in nature indicates how the government is keen on meeting its target in revenue collection.
However, considering the support that many communities receive on the same, the government should render them allowable while computing for the tax liabilities by the taxpayers. .

Subscriptions Disallowed

The Bill further proposes to disallow the deduction of subscriptions payable to trade associations and club subscriptions paid by employers on behalf of their employees in their tax computations.

Our Opinion
This is going to hit many companies that pay subscriptions on behalf of their employees to associations that impact them with more skills and techniques necessary for their professionalism and thus directly affecting their contributions and the overall performance of the companies. .

Capital Allowances

The Bill has massive changes with new allowance rates applicable on capital expenditure as shown below;

Tax Laws Amendment Bill 2020-01
Our Opinion
It is evident that the bill introduces more allowances on capital expenditure. Regardless, this is a complete overhaul of the capital allowances with reduced allowable rates.

As much as the government intends to increase its revenue collection by wanting a share in every year of use of assets, this move is expected to impact other sectors that initially did not enjoy more from their capital expenditures such as the Medical Sector.

In order for the government to cushion most businesses against the Covid-19 pandemic and accelerate their pick up and progress, it will be prudent that the existing capital allowances are retained just as they have been and increase the number of allowable capital expenditure.

Capital Gains Tax

The Bill intends to repeal the exemptions on gains from transfer of a private residence which the owner has occupied continuously for three years. In addition, the bill repeals the exemption on gains from the transfer of land at Kshs 3 million or less in value and the transfer of agricultural land of less than 50 acres.</br>

Regardless of the repeal of the exemptions, the Bill intends to exempt gains from transfer of property done on purpose of administering the estate of a deceased person where the transfer is completed within two years of the death of the deceased. In case of an ongoing court case, the exemption period shall be limited to a maximum of two years after the finalization of such court cases.

Our opinion
As noted, the government targets to collect revenue from individuals and business operators with minimum income who initially have been under the exemption category. This implies that the government has as much interest in small investors as it has in big investors in the country.

Value Added Tax

Tourism Sector

The hospitality industry has been greatly hit by the Covid-19 pandemic. However, the Tax amendment bill has more stricter measures channeled towards collecting more revenue from the hospitality industry.

  1. The Bill proposes the goods and services directly and exclusively used for construction of tourism facilities, recreational parks, convention and conferencing facilities, to be vatable. 
  2. The Bill further proposes to make the touring operations vatable at a standard rate.
  3. The Bill proposes to make the entry fees to national parks vatable at a standard rate.
Our Opinion

This cost is expected to reflect in pricing by the players in the hospitality sector. In order to give the hospitality industry time to heal and revive from the Covid-19 blow, the government should consider maintaining the zero rated and exemptions given to these goods and services upon approval by the Cabinet Secretary.
A mission of encouraging the Kenyans to visit the national parks themselves by the Tourism CS has seen many local visits to the national parks increase. If the proposal of making the touring operations and the entry fees to national parks vatable, then the pricing which is increased will be transferred to the visitors and interfering with their affordability.
Tourism is a key revenue generating sector that needs support. After the effects of Covid-19 pandemic, it is only prudent that the government retains the exemption and zero rate status on these items in order to help restate the hospitality industry back to its normal position.

Agricultural Sector

The Bill has several proposals with regards to agricultural and processing sector. Such proposals include;

  1. Inputs purchased by manufacturers of agricultural machinery will be vatable at a standard rate; 
  2. The Bill further proposes that the materials used for grain storage will be vatable ata standard rate;
  3. The Bill proposes that agricultural pest control products be vatable at a standard rate; 
  4. The Bill proposes inputs and raw materials supplied to manufacturers of agricultural pest control products be vatable at a standard rate;
  5. Goods supplied to marine fisheries and fish processors will be vatable at standard rate;
Our opinion
The covid-19 pandemic has seriously affected the Kenyan economy at a greater length. The country heavily relies on the agricultural sector for survival during these tough times. It is quite disappointing that among the proposals, some are bracing tough times for the agricultural players.

The agricultural sector has experienced serious hurdles recently among them being the great locust infestation that has seen many hectares of farms incur losses.

In order to combat such occurrences again, pesticides have to be made affordable to the local farmers. It is our urge that the parliament does maintain the exemption of the materials used in manufacturing of the pesticides and the pesticide products.

Also, the government should retain the exemption status for agricultural machineries and grain storages in order to reduce the cost of affordability by the Kenyan farmers.

Plastic Recycling Plants

The Bill proposes that plant, machinery and equipment inputs used in construction of plastic recycling plants be vatable at a standard rate.

Our opinion
It is among the government’s objective that the country goes green and manages plastic waste. Regardless, making the plant, machinery and other inputs used in construction of the plastic recycling plants vatable does not support the agenda of Kenya going green and environmentally conscious. It is arguable that as a country, we are yet to get an all-round green environment. In order to encourage corporate investors in joining the agenda of maintaining the environment, such materials should be exempted upon the recommendation by the Cabinet Secretary.

Liquefied Petroleum Gas

The Bill intends to make taxable any supplies and services exclusively supplied or used in construction of LPG storage units. It also intends to make the supply of LPG products taxable.

Our opinion
The supply of essential items such as the LPG will directly increase the cost of living for the citizens since it is basic in many for their day to day operations.
It is our urge that the parliament drops the provisions that might raise the cost of living for many Kenyans

Withholding Tax

Taxation of Dividends

The Bill intends to increase the withholding tax rate applicable on dividends paid to non-residents to 15%.

Our Opinion

This a move intended to collect more on the dividends paid out of the country. Other than the Double Tax Treaties existing, this will discourage investment in the country by the non-residents.

Qualifying Interest Redefined

The Bill has redefined qualifying interest to include the aggregate interest, discount or original issue discount receivable by a resident individual in any year of income. Initially, qualifying interest was restricted to interest receivable by individual from a bank or a licensed financial institution

Our opinion
This is a foreseen move by the government in its attempt to increase revenue generating sources. However, this may bring about conflicts among the business operators in countries having a double tax treaty with Kenya. In addition, this will increase the cost of the above services to the taxpayers.

Expansion of the Withholding Tax Bracket

The Bill proposes to introduce withholding tax on services relating to sales promotions, marketing, advertising services and transportation of goods at the rate of 5% and 20% to residents and non-residents respectively. The transportation of goods shall exclude air and shipping transport.

Our opinion
This redefinition is a welcome move since it is expected to provide clarity to the taxpayers on what should entail qualifying dividends..

Employment Tax

PAYE Tax Band & Pension Relief

The Bill proposes to expand the PAYE tax band as shown below;

PAYE Tax Band & Pension Relief

The Bill proposes to expand the PAYE tax band as shown below;

Old rates as per the Income Tax Act

The Bill further proposes to increase the personal relief from Kshs 16,896 to Kshs 28,800.

Our Opinion
This is a welcome move that will increase the taxpayers take-home. With the effects of the covid-19 pandemic, this will help bring more individuals who rely on employment income back at their feet and cushion them from economic pressures.

Payments and Withdrawal of Pension

The Bill proposes to reduce the marginal rate of tax on pension payments and withdrawals from 30% to 25% provided its from a registered pension fund, provident fund, NSSF or registered individual retirement fund made after the expiry of 15 years or before the expiry of 15 years.
The new tax rates are as shown below

Payments-and-Withdrawal-of-Pension
Payments-and-Withdrawal-of-Pension

Low Income Earners

The Bill scarps away the exemption from tax to low income earners that do not exceed the lowest tax band on bonuses paid, overtime, retirement and any other benefits that they receive.

Our opinion
The effects of Covid-19 pandemic has many people relying on the employment benefits such as overtime and bonuses in order to make their ends meet. This proposal will hurt many taxpayers who fall below the lowest tax band. It will be benefitting if the government considers the hard-economic status and cushions the low-income earners by retaining these incentives.

Covid-19 has already had a significant impact on global financial markets and could have
accounting implications on entities. Some of the impacts that have been experienced or will be
experienced include the following:

Home Ownership Saving Scheme

The Bill proposes to scrap the tax relief to taxpayers who save with the House Ownership Saving Scheme in order to own a house.

Our opinion
This is not a welcome move since the HOSPs are there to support individuals in acquiring houses. This will also be acting against the Big 4 Agenda of affordable housing among all Kenyans. Considering that the goal of affordable housing among all Kenyans is yet to be realized, we request the government to retain this tax relief for the Kenyans who are saving to own a house.

Excise Duty

Other Fees

The Bill intends to redefine other fees to include any fees, charges or commissions charged by financial institutions relating to their licensed activities, but does not include interest on loan or return on loan or an insurance premium or premium based or related commissions or fees or commissions earned in repsect of a loan or any share of profit or an insurance premium or premium based or related commissions specified in the Insurance Act or regulations made thereunder.
Our Opinion

Our Opinion
This is a welcome move since it provides clarity needed that excise duty will be charged only on licensed activities of financial institutions.

Locally Manufactured Sugar & Chocolate

The Bill intends to reintroduce excise duty on locally manufactured sugar confectionary and white chocolate.

This proposal will have the cost increased by the local manufacturers which in turn will be transferred to the consumers.

 

Exemptions

The Bill proposes to remove goods imported or purchased locally for direct and exclusive use in the implementation of projects under special operating framework arrangements with the government from the exemption.

 
 

Tax Procedures Act

Turnover tax return penalty

The Bill proposes to reduce the penalty for failure to submit returns for turnover tax from Kshs 5,000 to Kshs 1,000.

This is a welcome move since it is manageable for the small businesses and thus encouraging compliance among the small and medium businesses.

Appointment of Agents

The Bill gives the Commissioner the power to register persons under the Banking Act to agents for revenue banking services for purposes of depositing the money with the Central Bank. It also proposes a penalty of 2% on the amount collected and not deposited.

Private Ruling

The Bill has scrapped the provision under the Tax Procedures Act that requires the Commissioner to issue a private ruling within 45 days.

Miscelleneous Fees & Other Levies

Import Declaration Fee

The bill proposes to remove gifts and donations by foreign residents to their relatives in Kenya from the exemptions from Import Declaration Fee. This comes at a time when many people adversely affected by the Covid-19 pandemic heavily rely on these kinds of donations for survival. We urge that the government reconsiders this and retains the exemption. This will assist in the global fight against Covid-19 pandemic and alleviating the livelihood of the victims. 

Our Own Proposal

Donations

Expenditure incurred on donations to registered charitable institutions are deductible. However, many people have been directly affected by the Covid-19 pandemic. In order to encourage the spirit of sharing and helping one another, any expenditure incurred by corporate entities in terms of donations made to the public directly or indirectly through hospitals, with the aim of fighting against the spread of the Covid-19 pandemic, be allowable when computing the taxable income in this particular year of income.

Ronalds LLP for Audit Tax Advisory
Ronalds LLP for Audit Tax Advisory
Ronalds LLP for Audit Tax Advisory
Maggie Wavinya Tax Expert Ronalds-We are a professional firm dealing with: audit, tax, and Advisory services in Kenya. We use cutting edge technology solutions to deliver results.
Ronalds LLP for Audit Tax Advisory

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