Pain for Kenyans in the New Year as MPs approve COVID-19 tax reversals

Kenyans are set to usher in the New Year with new pain after the approval of COVID-19 tax reversals by the National Assembly on Tuesday afternoon.

Members of Parliament (MPs) overwhelmingly voted in support of the end of tax relief measures by ratifying the Tax Laws (Ammendment) [No.2] Bill, 2020.

The impact of the adoption of the bill is set to affect both company bottom lines and household incomes as it effects the reversal of higher income tax.

The rate of pay as you earn (PAYE) will for instance change to a higher 30 per cent from 25 per cent effective from January 1 while the corporation tax rate will move back to 30 per cent from the current 25 per cent.

In addition to the passage of the tax laws bill, MPs have approved a legal notice allowing the National Treasury to revert the rate of value added tax (VAT) to 16 per cent from the current lower threshold of 14 per cent.

While considering the bill in the special sitting, MPs agreed the end of tax relief measures was of essence to restoring thinning government revenues at a time when the exchequer is staring at an unfolding cash-crunch.

When announcing the planned reversals of tax measures earlier this month, the National Treasury stated the government had lost up to Ksh.65 billion in revenues from the lower tax rates which were effected in April as a cushion to the economy.

The return of the higher rates of tax has come under criticism from different economic sector players who observe the reversals as punitive at a time when the economy is yet to follow re-emerge from the impact of the pandemic.

For instance KPMG has argued the reversals would only serve to increase the burden tax burden on enterprises.

“The proposed increase in the corporation rate will mean that despite the current economic challenges, companies will need to dig deeper to settle their tax liabilities,” the tax consultancy firm said in a note last week.

In contrast developed countries have been moving to increase their cushioning for local economies in a boost for economic recovery in the New Year with billions of dollars pushed to stimulus plans.

For instance, the US government approved a $900 billion second stimulus plan overnight Tuesday which includes $600 (Ksh.65,700) in personal cheques to its citizens and $330 billion in support to small businesses.

Nevertheless, pressure from falling government revenues against increased expenditure needs occasioned by the COVID-19 has seen the State shed the tax benefits handed to Kenyans earlier in the year.

President Uhuru Kenyatta is expected to sign the tax laws amendment bill into law before the close of the year having himself Okayed the reversals earlier in September.

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