THE TAX LAWS(AMENDMENT) ACT, 2020

Our country Kenya was hit by Covid- 19 pandemic 4 months back. Drastic impacts to the whole economy affected every sector including business, industry, manufacturing, agricultural etc. and it's effect echoed across everything.

The bill published on March 30 amends tax-related laws including Income Tax Act (CAP 470), Value Added Tax Act of 2013, Excise Duty Act (2015), Tax Procedures Act (2015), Miscellaneous Levies and Fees Act (2016) and Retirement Benefits Act, 1997.

President Uhuru Kenyatta on Saturday 25th April 2020 signed into law the Tax Laws (Amendment) Bill, 2020 as part of measures to cushion the public against effects of the Covid-19 pandemic.

EMPLOYMENT TAXES EFFECTIVE FROM 25TH APRIL 2020

Increase in personal relief from KES 16,896(KES 1,408 per month) to KES 28,800 per year (KES 2,400 per month)

The Tax Laws(Amendment) Act 2020 has expanded the Individual PAYE bands as follows:

Enhancement of tax rates in respect of payments or withdrawals from pensions comment. This adjustment will incrase the net take home for resident persons.

Expansion of tax band as at 1st April 2020
On first 288,000 On first 24,000 10%
On the next 200,000 On the next 16,667 15%
On the next 200,000 On the next 16,667 20%
On all income over 688,000 On all income over 57,334 25%

EXAMPLE: If an employee is earning KES 35,000 gross income and currently paying the paye as much as KES 3,743, they will now pay KES 1,650. So there is a reduction of KES 2,093.

If an employee is earning KES 120,000, they will now pay the paye as much as KES 19,980 from previous amount for KES 28,596, a reduction of KES 8,616.

Effectively all income below KES 24,000 per month is now exempt from tax.

COMMENT: The above changes will increase the taxpayer's disposable income as well as cushion taxpayers whose income has been eroded by inflation.

This will have implications on the April payroll since the PAYE is deducted upon payment and where payment is made after the effective date, the new rates should apply.

INCOME ACCRUED, DERIVED FROM OR RECEIVED IN KENYA WHICH WAS EXEMPT FROM TAX

There is major overhaul of exempt taxes which was previously seen in First schedule Part 1

Mostly related to contracts and agreements that are deleted from the ACT, such as:

  1. Profits or gains of an agricultural society accrued in derived from Kenya or show held for purpose of society.
  2. The emoluments of any officer of the Desert Locust Survey who is not resident in Kenya.
  3. Employment income under contract which was entered into consequent upon financial assistance being received from the International Co-operation administration for enterprise in respect of which contract was entered and which provides that income shall be exempt from taxes.
  4. Interest earned on contribution paid into deposit Protection Fund under the Banking Act
  5. Dividends received by registered venture capital company.

Comment: This amendment seeks to broaden the tax base since individuals and incomes that were previously exempt are now subjected to tax,

PENSION

The Act has reduced marginal rate from 30% to 25% in respect of pension payments and withdrawals from the registered provident fund NSSF or registered individual retirement fund. Tax bands on the Pension withdrawals in line with above as follows:

WITHDRAWALS BEFORE EXPIRY OF FIFTEEN YEARS OF JOINING THE PENSION
BAND TAX RATE
On the first 400,000 10%
On the next 200,000 15%
On the next 200,000 20%
Over 688,000 25%

The due dates for remittance of PAYE and taxes on pension remains on or before 9th of the following month.

By: Daksha Ranpara F.C.C.A., C.P.A.(K)

Partner

CAVEAT

This newsletter has been prepared for general guidance, and does not constitute professional advice. Accordingly, Ashvin Ranpara & Co, its associates and its employees and agents accept no liability for the consequences for anyone acting or refraining for acting, in reliance on the information contained herein or for any decision based on it. No part of the newsletter may be reproduced or published without prior written consent.