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Low-paid workers escape KRA tax net

BUSINESS
By Dominic Omondi | November 20th 2019
KK security guards. [File, Standard]

Kenyans who offer services such as cleaning and security can heave a sigh of relief after the government spared them from new taxes.

President Uhuru Kenyatta recently assented to the Finance Act, 2019, which scrapped an earlier proposal introducing withholding taxes on the services.

Other service providers who had been targeted in the tax measures included those engaged in sales promotion and marketing, catering, transport, and advertising.

The removal of the taxes will not only benefit employers in the said sectors, often contractors of bigger firms, but also unskilled employees who eke a living in the sectors, as it was widely expected to reduce their take-home pay.

Cooks, waiters, security personnel and cleaners who earn a monthly salary of between Sh7,000 and Sh16,000 were spared.

Suspended National Treasury Cabinet Secretary Henry Rotich had proposed to expand withholding tax by introducing the levy.

The new tax measures, he said, were informed by the need to mobilise resources by expanding the tax base. 

“Over the years, with the expanding economy, there has been an increase in services that are offered on a commercial basis, some of which are not within the ambit of withholding tax,” said Mr Rotich.

“I, therefore, propose to expand the scope of application of withholding tax by subjecting additional services, other than management and professional fees, to withholding taxes.”

Bowmans, a law firm, said while the removal of the proposal was welcome, taxpayers will hope that the scrapping of the measures will be followed by alignment with Kenya Revenue Authority's internal policy.

“In the past, the KRA has sought to subject payment of the above services to withholding tax under the existing provisions of the Income Tax Act,” said the firm.

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