The Tax Laws (Amendment) Act, 2020

The Tax Laws (Amendment) Act, 2020 which was aimed at making certain fiscal changes to the taxation regime as a response to the Covid-19 pandemic so as to cushion Kenyans against adverse economic and financial effects from the pandemic, has made significant changes to Kenya’s tax landscape. Some of these changes include overhauling the capital and investment allowances and tax exemption regime under the Income Tax Act, as well as reduction of the corporate tax rate, Pay As You Earn tax bands, VAT rate, expanding the list of the items that are subject to VAT with previously exempted supplies, among others.

As a direct response to Covid-19, the Act also provides for VAT exemption for personal protective equipment for use by medical personnel and members of the public in the case of a pandemic such as Covid-19.

We have put together a comprehensive overview of the key provisions in the Act and their potential impact on taxpayers, including the winners and losers. Click here to read the full article.


Income Tax Considerations

Winners
  • Employees – reduction of PAYE
  • Pensioners and individuals withdrawing funds from pension funds
  • Resident companies – corporation tax reduction to 25 percent
  • Small businesses (including incorporated entities) – reduced turnover tax rate from 3 percent to 1 percent and removal of presumptive tax
Losers
  • Non- resident shareholders in Kenyan companies – withholding tax on dividends increased from 10 percent to 15 percent
  • Special Economic Zone enterprises – introduction of withholding tax on dividends paid to non-residents
  • Manufacturing entities – removal of enhanced electricity deduction of 130 percent
  • Newly listed companies – removal of reduced corporate tax rate of 20 percent
  • Power producing companies:
    • Withdrawal of 100/150 percent investment deduction
    • withdrawal of compensating tax exemption

VAT  Implications

Winners
  • Manufacturers of Personal Protective Equipment  – VAT Exempt
Losers
  • Consumers of fuel and petroleum products – potential increase in prices due to amendment in the basis for computing VAT
  • Developers of industrial parks – VAT exemption withdrawn
  • Manufacturing, Power, Mining, and Oil exploration companies – VAT exemptions withdrawn
  • Insurance sector – introduction of VAT on insurance agency and brokerage services

Commercial transactions and internal reorganisations – removal of VAT exemption on transfer of business as a going concern.


Should you have any questions regarding the information in this legal alert or any other tax matters, please do not hesitate to contact Daniel Ngumy or Kenneth Njuguna.

Daniel Ngumy
Partner
ALN Kenya | Anjarwalla & Khanna
dng@africalegalnetwork.com
Kenneth Njuguna
Partner
ALN Kenya | Anjarwalla & Khanna
kkn@africalegalnetwork.com

 


The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.

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