President Uhuru Kenyatta has announced a raft of tax cuts as the government seeks to cushion households and companies from the crippling effects of the coronavirus pandemic.
The tax relief options mainly target low-income earners, and include cuts in Pay as You Earn (PAYE), value-added tax (VAT), turnover tax (TOT) and corporate tax.
Those earning a gross salary of up to Sh24,000 a month will be granted full tax relief on PAYE.
Other employees will, however, benefit from a reduction in PAYE from 30 per cent to 25 per cent, after the president instructed Treasury Cabinet Secretary Ukur Yatani to come up with a mini-Budget that should also see the levy on corporations’ profits - corporate tax - go down by a similar margin.
Loss of income
“I recognise the anxiety that this pandemic has caused millions of Kenyan families, fearful of what the future may hold for them and their children, and the possibility of job losses and loss of income weighing heavily on their minds,” said President Kenyatta from State House yesterday.
He gave small businesses a reprieve in his proposal to reduce TOT from 3 per cent to 1 per cent. The tax was introduced in January this year for businesses whose annual gross sales are below Sh5 million.
As the business environment slows down and workers’ job security gets uncertain, the president sought to inject more money into the economy to keep its wheels rolling.
The proposed reduction in VAT from 16 per cent to 14 per cent will be reflected in the prices of commodities, such as toilet paper, juice and shoes.
Further, the elderly, orphans and people living with disabilities are also set to receive an additional Sh10 billion that will be disbursed through cash-transfer programmes under the Ministry of Labour and Social Protection.
These measures came on the back of Uhuru’s announcement that the country has registered its first fully recovered patient from Covid-19, the disease caused by the new coronavirus.
However, three more people tested positive for the disease, bringing the total number of confirmed cases to 28.
In a televised address yesterday evening, Uhuru directed the Treasury to begin the legislative process that will see the relief measures effected from April 1.
Lenders have also been instructed to suspend the listing of individuals, entrepreneurs and corporate entities with credit reference bureaus (CRBs) if they default on their loan facilities as at April 1.
SMEs and private sector players are also expected to benefit from the president’s directive to public offices to settle Sh13 billion in pending bills within the next three weeks.
“Similarly, and to improve liquidity in the economy and ensure businesses remain afloat by enhancing their cash flows, the private sector is also encouraged to clear all outstanding payments among themselves within three weeks from the date hereof,” said the president.
The Kenya Revenue Authority (KRA) has also been put to task to settle payments of all verified VAT refund claims owed to the private sector amounting to Sh10 billion within three weeks to improve business’ cash flow.
The government will also recruit additional healthcare workers to support the management of the spread of Covid-19, with the Treasury asked to allocate Sh1 billion from the Universal Health Coverage kitty.
In a speech calling for unity, the president vowed to continue with “targeted State interventions” to defeat the virus.
“If these measures are deemed to be inadequate, we shall without hesitation take even further and more drastic measures to ensure that the cardinal duty of the State, which is the protection of property and lives, is assured.”.
The measures come at a time when the Central Bank of Kenya (CBK), which been doing the heavy-lifting since the country confirmed its first coronavirus case 13 days ago, revised economic growth projections for the year to 3.4 per cent from a baseline of 6.2 per cent.
It will be the slowest growth since 2009, when the size of the economy expanded by 2.7 per cent.
Already a cash-strapped Kenya has sought the financial help of the World Bank and International Monetary Fund to the tune Sh122 billion, which will be used to deal with the health and economic impact of the pandemic.
Meanwhile, the president, his deputy and senior members of the Executive will have the voluntary option of taking a pay cut to free up funds to fight the pandemic.