Kenyans will pay more for some imported goods and alcoholic products as the Kenya Revenue Authority starts implementing new tax measures. But they will get a reprieve after some tax proposals in the Finance Bill 2020 were thrown out by Members of Parliament.
Among the taxes that took effect yesterday following the signing of the Finance Bill 2020 into law by President Uhuru Kenyatta on Monday include the imposition of higher import duty on finished products imported into the country. The Treasury imposed taxes on imported leather and footwear, electrical parts and accessories to protect local industries.
The new law will also see an increase in the cost of goods from the East African Community States, with the Import Declaration Fee (IDF) for goods imported under the East African Community Duty Remission Scheme going up from the current Sh10,000 at the point of entry for home use to 1.5 per cent of the customs value.
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Also going up is the cost of clothing made at the Export Processing Zones (EPZs) but sold in the local market, which will now attract a 2.5 per cent duty.
Among the tax proposals that will come into effect on January 1, 2021, including the 1.5 per cent digital tax largely targeting multinational firms selling products locally. Others are the minimum tax that will see loss-making firms pay tax pegged at one per cent of their revenues and income tax on registered homeownership plans. The imposition of Value Added Tax on helicopters and light aircraft will take effect on July 1, 2021.
Treasury expected to make Sh38.9 billion in additional tax revenues when it made different tax proposals in the Finance Bill 2020. But the plan might experience significant gaps after Members of Parliament turned down some of the proposed taxes, among them tax on monthly pensions for people aged over 65.
Treasury also wanted to subject income earned by the National Social Security Fund (NSSF) to income tax, a burden that would have been passed on to pensioners that rely on savings they made with NSSF.
“We return the benefit… to members of the public who are 65 years and above and are receiving a monthly pension,” said Joseph Limo, chairman of the committee when he tabled recommendations on the Bill in Parliament.
MPs also zero-rated VAT on maize flour for six months, which was previously VAT exempt, a move that is expected to reduce cost of flour. MPs also shot down Treasury’s proposal to import VAT on cooking gas.
“To some extent, the MPs have tried to shield Kenyans because they zero-rated VAT on maize, cassava and wheat flour. They also tried to help pensioners whose earnings would have been subject to income tax, which would not have been very fair,” said Nikhil Hira, director at Bowmans Kenya.
He also noted that there is need to relook at some of the tax measures as implementation might difficult. Such include the minimum tax, which is seen as an attempt to tax businesses that might be reporting losses.
“If you look at Income Tax Act, insurance companies are taxed on a particular basis and if you now say that their gross written premiums will be taxed at one per cent, that is going to have serious implications on the industry,” said Hira.
The Finance Act 2020 will also breathe life to the betting industry. Betting firms shut down their operations in the country after the introduction of a 20 per cent excise duty on money ‘invested’ by betting enthusiasts (bets staked).
It would result in the closure of major betting companies while online and unregulated companies continued to thrive, which is among the reasons that MPs cited introducing an amendment to remove the excise duty on betting.
Before the major firms shut down last year, the industry had been in a push and pull with government not just about taxation but also the regulatory environment that they considered harsh.
“This is to reverse the negative effects of this tax on the industry, which has led to closure of betting companies in Kenya, yet international players continue to operate,” said the Finance and Planning Committee in its report on the Finance Bill.
The Finance Bill also increased the lower limit of landlords that will be required to pay taxes on rental income. Previously, this was at Sh144,000 but this has been pushed up to Sh288,000.