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President Uhuru Kenyatta on 25 March 2020 delivered a number of measures designed at cushioning Kenyans from the impact of COVID-19.
The President acknowledged that following the declaration by the World Health Organization (WHO) categorising COVID-19 as a pandemic, it was necessary for the government to make targeted state interventions to mitigate shocks arising from the impact of the pandemic and to empower the public as well as the private sector to work together to support the Kenyan economy during these tough times.
Consequently, the President has directed the National Treasury to implement a number of immediate relief measures geared at individual taxpayers, businesses, and investments and with a view to increasing disposable income for the people of Kenya in general.
The measures appear to go beyond those which have, to date, been introduced by other East African governments. The Ugandan and Rwandan Governments have so far announced various tax measures to combat COVID-19.
Our Firm had earlier sent proposals to the National Treasury, some of which have been adopted. Click here for a copy of these proposals. A&K also contributed to the Law Society of Kenya’s proposals which can be found here.
Statutory Changes Required to Implement these Changes
In order to implement the measures declared by the President, we expect that the Government will issue a special Tax amendment statute which will introduce these measures.
The changes will necessitate an amendment of the provisions of the Income Tax Act and the Value Added Tax Act. We expect that the Government will shortly issue a Tax Amendment Bill which will set out these changes. It is unclear what the enactment process will be, noting the fact that Parliament is in recess at the moment as a result of the COVID-19 pandemic.
Additionally, it will be noted that the High Court in the case of Okiya Omtatah Okoiti v Cabinet Secretary, National Treasury & 3 others Petition No. 253 of 2018 declared that the Provisional Collection of Taxes and Duties Act (the PCTDA) (which allowed for tax measures to be introduced through a Bill prior to its enactment into an Act) to be null and void. The High Court in addition stated that “…the Finance Bill 2018, or any parts or provisions thereof, including on taxation, cannot be implemented before the Bill becomes the Finance Act after it goes through the parliamentary legislative process laid out in the Constitution for approval and adoption by Parliament, and assent by the President.” Based on this decision, and except as set out below, it would appear that the measures can only enter into force once the Tax Amendment Bill has been enacted into law by Parliament once it is convened and on such terms as the prevailing pandemic situation may allow. Had the PCTDA still been in force, it would have provided a mechanism for the Government to implement all the tax measures immediately and without the need for parliamentary intervention (prior to the enactment of the statute into law).
As will be noted below, the President has directed that the National Treasury reduce the rate of VAT from 16 percent to 14 percent, with effect from 1 April 2020. Section 6(1) of the Value Added Tax Act specifically empowers the Cabinet Secretary by an order published in the Kenya Gazette, to amend the rate of tax by increasing or decreasing any of the rates of tax by an amount not exceeding twenty-five percent of the prevailing rate. The proposal to reduce the VAT rate to 14 percent is therefore well within the power of the Cabinet Secretary to amend, and we would expect that a Gazette Notice to this effect will be published imminently.
Additionally, it will be noted that the off-setting of VAT refund claims against tax liabilities owed by the taxpayer under any other tax law is allowed, upon application, pursuant to section 47 of the Tax Procedures Act. The grant of approval is conditional upon the Commissioner being satisfied that the refund is due. On this basis, it would appear that the process will be expedited, provided that the VAT refunds have been verified.
The comments highlighted in this alert are based on our preliminary views following the President’s news briefing. Once the Tax amendment statute has been published, we will issue a more comprehensive alert that may include items that were not reflected in the President’s address.
|Monthly Taxable Pay (KES)||Annual Taxable Pay (KES)||Current rate of Tax||New rate of Tax as proposed in the President’s address|
|Up to 12,298||Up to 147,580||10%||0%|
|12,299 to 23,885||147,581 to 286,623||15%||0%|
|23,886* to 35,472||286,624 to 425,666||20%||20%|
|35,473 to 47,059||425,667 to 564,709||25%||25%|
|Above 47,059||Above 564,709||30%||25%|
*Please note that those who earn up to KES 24,000 will be exempted from PAYE and therefore this band will not apply for the first KES 114 (i.e. up to KES 24,000).
The President has also directed that the following measures be implemented immediately to enhance healthcare services, cushion the vulnerable in society and improve liquidity:
The measures set out above are in addition to the following emergency measures introduced by the Central Bank of Kenya on 24 March 2020:
We will keep you updated on developments and issue a comprehensive analysis of the changes once the Tax Amendment statute has been published.