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Tax break ends in new year

By Sara Okuoro | Dec 4th 2020 | 2 min read
By Sara Okuoro | December 4th 2020

The National Treasury will reinstate old tax rates on PAYE and VAT from January 1, 2021, as Cabinet Secretary Ukur Yatani (pictured) says government revenues dipped significantly due to the cuts.

The State reduced the rates to cushion Kenyans who were cash-strapped as a result of the coronavirus pandemic.

By December 31, 2020, Kenya will have foregone tax revenues amounting to Sh65 billion in the current financial year.

CS Yatani says the decline in revenue has and will affect the implementation of the government's priority programmes under the Big Four Agenda and the recovery of the economy in general.

“In respect to the foregoing, and given the easing of some of the containment measures and subsequent resumption of normalcy, it has, therefore, become necessary to return to the pre-COVID-19 tax rates effective 1st January 2020," he said in a statement on Friday.

As such, the Corporate Tax rate reverts to 30 per cent from the current 25 per cent.

Individual income tax reverts to 30 per cent from the current 25 per cent.

Value Added Tax rate reverts to 16 per cent from the current 14 per cent.

This will weigh heavy on many Kenyans who suffered pay cuts due to the pandemic and may likely not revert to their pre-Covid paycheques.

In April 2020, President Uhuru Kenyatta ordered the lowering of corporate, individual income (PAYE) and Value Added Tax (VAT) rates as part of a temporary measure to cushion Kenyans from the adverse effects of the Covid-19 pandemic.

Corporate tax for residents and top individual income tax was brought down from 30 per cent to 25 per cent.

In addition, workers earning less than Sh24,000 were fully exempted from PAYE and increasing tax relief for individuals increased from Sh16,896 to Sh28,800.  VAT reduced from 16 per cent to 14 per cent.

CS Yatani says the government will continue to cushion low-income earners by retaining 100 per cent tax exemption/relief for those earning monthly incomes of Sh24,000 and below.

The State will also continue to roll-out interventions under the Sh58.1 billion Economic Stimulus Programme (ESP) to cushion vulnerable citizens and also enhance the liquidity of businesses.

“The government has rolled out a medium-term Economic Recovery Strategy that will reposition the economy on a path of prosperity,” said CS Yatani.

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