President Uhuru Kenyatta signals the end of tax relief measures

President Uhuru Kenyatta signals the end of tax relief measures

President Uhuru Kenyatta has signalled the end of part of tax relief measures implemented in April this year and dubbed as the first economic stimulus to cushion against COVID-19.

Relief on income tax on both individuals and companies/pay as you earn (PAYE) and corporation tax will be the first to fall on January 1, 2021.

At the end of March President Uhuru Kenyatta directed the National Treasury to lower the effective PAYE and Corporation Tax rates from 30 per cent to 25 per cent without putting any timelines on the length of implementation.

The measures would take effect in April following the ratification of the proposals by the National Assembly.

President Kenyatta has further directed the National Treasury to consider retaining the effective rate of Value Added Tax (VAT) at 14 per cent until July 1.

However, the President has requested the National Treasury to retain part of the tax relief measures including a 100 percent tax relief on earners below Ksh.24,000 and the retention of the MSME turnover tax at one percent.

“To continue cushioning low income earners I direct the National Treasury to consider maintaining the 100 per cent tax relief on persons earning a gross monthly income of up to Ksh.24,000 beyond the sunset date of December 31, 2020,” President Kenyatta said during his televised address to the nation on Monday.

Further, President Kenyatta has directed the National Treasury to expedite the operation of the SME Credit Guarantee fund whose activation is set for next month.

“This will afford our enterprises across the country to access credit and would increase the amounts we can lend to this sector by Ksh.100 billion,” he added.

The return of part of the effective tax rates is seen as a measure to grow revenues for the government which slumped under the combination of the relief measures and the general collapse of economic activity following the advent of COVID-19.

The declining revenues were however largely profound on the excise tax head which can now expect a notable bounce following directives ending the closure of bars.

The Kenya Revenue Authority (KRA) for instance fell off its tax collection targets for the year 2019/2020 by Ksh.394 billion while collections in the first two months of the current financial year have been 15 per cent off the mark at Ksh.188.1 billion.

The National Treasury which had warned of the loss of atleast Ksh.172 billion from the tax relief measures has recently been forced to revise downwards its ordinary revenue collections to June 2021 to Ksh.1.524 trillion from Ksh.1.634 trillion.

“In light of these challenges, the revenue projections for FY 2020/21 have been revised taking into account a lower projection base- Supplementary III (on account of the Ksh 131.2 billion shortfall in FY 2019/20), revenue performance by end August 2020 and the prolonged effects of COVID-19 Pandemic on economic activities and the measures put in place to curb its spread,” the National Treasury noted in its draft Budget Review and Outlook Paper (BROP) published earlier this month.

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