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The Tax Laws (Amendment) Bill, 2020 was published on 30 March 2020 (the Bill) to make amendments to tax-related laws in Kenya including the Income Tax Act (CAP 470), the Value Added Tax Act, 2013, the Miscellaneous Fees and Levies Act, 2015 and the Excise Duty Act, 2015. The National Assembly will, on 8 April 2020, consider and vote on the Bill and forward it for assent to the President.
The Bill was expected to bring in the measures set out in the President’s address of 25 March 2020, and which we advised you on through our earlier Legal Alert (Highlights of the Covid-19 Tax Measures). However, it is surprising to note that the Bill has far-reaching tax measures introducing a large number of tax changes and in particular, removing a large number of VAT exemptions on essential goods and services such as medicines and agricultural inputs. While it is appreciated that the introduction of tax reliefs to the Kenyan taxpayers would have resulted in revenue deficits for the Kenyan Government, which need to be recovered through the introduction of new measures, it is concerning that the proposed tax increase measures have been put together hastily. The measures also risk receiving inadequate public participation, which would normally be the case, with a Finance Bill introduced through the regular public finance cycles.
In our view, therefore, it would be preferable for the Government to pass the emergency measures intended to mitigate the effects of COVID-19 first, and to expose the far-reaching tax measures to adequate public participation as required by the Constitution of Kenya.
The Bill further proposes to make significant changes to Kenya’s tax landscape, particularly by overhauling the investment deduction regime under the Income Tax Act and by expanding the items that are subject to VAT, which was previously exempted supplies. The Bill further proposes to reduce the marginal tax rate on Pay As You Earn (PAYE) from 30 percent to 25 percent in addition to cushioning low-income employees by increasing the tax-free income to KES 24,000 (approx. USD 226).
We have put together a comprehensive overview of the key proposed amendments in the Bill.