The government is set to end the tax breaks it had given Kenyans earlier in the year to cushion them from the harsh impact of Covid-19.
The National Treasury said yesterday it plans to revert taxes such as Value Added Tax, corporation tax and Pay As You Earn (PAYE) to their normal rates before the novel coronavirus hit the country in March.
Cabinet Secretary Ukur Yatani said this is to fill the revenue gaps arising from the tax breaks. He also noted that the economy, which significantly slowed down following the announcement of the first Covid-19 case in the country mid-March, had started showing signs of recovery.
“We are now in the process of reversing some of the interventions… It is clear that we are going to have a significant revenue shortfall, which is going to place pressure on expenditure,” said Yatani.
The CS spoke during a virtual Bloomberg Invest Africa event.
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Reverting to normalcy will mean VAT will go up to 16 per cent from the current 14 per cent, while corporate tax and PAYE will revert to 30 per cent from 25 per cent.
Kenyans earning below Sh24,000 a month had been given 100 per cent tax relief.
These measures, according to Treasury, meant the Exchequer had to forgo tax revenues in excess of Sh79.4 billion.
Between June and October, the Kenya Revenue Authority (KRA) reported a decline of Sh70 billion in revenues collected compared to a similar period last year.
Other than tax breaks, the government has also spent Sh58 billion in a stimulus package, some of it targeting the youth in an attempt to keep the economy going.
Yatani is optimistic the economy will grow this year despite the harsh realities of Covid-19.
He projected a growth of 0.6 per cent over the year, which is against a 5.7 per cent contraction in the quarter to June.
This is in comparison to a growth of 5.3 per cent over a similar quarter last year.
It was the first time that the economy had contracted since the third quarter of 2001 when it shrank by 2.5 per cent.
“The growth of the economy will still be positive at about 0.6 per cent rather than the negative that was initially projected,” said the CS.