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Bleak year beckons as Yatani takes away Covid-19 tax relief

By Dominic Omondi | December 5th 2020 at 08:00:00 GMT +0300

The Treasury will reverse existing tax breaks from January 2021. [Wilberforce Okwiri, Standard]

Tax cuts introduced in April to offer some relief against Covid-19 will end at the beginning of next year, plunging Kenyans into a bleak 2021.

This comes on the backdrop of a lost 2020 in which the country’s economy almost came to a standstill following the negative impact of the coronavirus pandemic.

National Treasury Cabinet Secretary Ukur Yatani yesterday said tax heads such as value-added tax (VAT) and income tax paid by workers and employers would revert to their normal rates following an eight-month period in which they were reduced to cushion businesses and individuals.

Mr Yatani said the decision to return the taxes to their pre-Covid level was informed by the loss of revenue, with the Government having to forego Sh65 billion in the period when Kenyans enjoyed the tax reliefs.

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“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 January 1, 2021,” he said.

The maximum tax rate paid by employees and corporate tax by businesses will revert to 30 per cent from the current 25 per cent.

VAT, which is charged on every sale, will go back to 16 per cent from 14 per cent.

However, workers earning Sh24,000 and below will continue enjoying a 100 per cent waiver in what Yatani said was meant to cushion low-income earners from the adverse effects.

School fees

The move comes at a time when Kenyans - most of whom are yet to recover from the effects of the pandemic - will pay school fees next month as all students return to school.

Education Cabinet Secretary George Magoha and Parliament have also approved the tripling of university fees, in what is likely to hit households hard.

The Government says it has been collecting less taxes, a situation that has seen it borrow more to cover the budget deficit - the difference between what it collects in taxes and what it spends.

Rather than cutting expenditure, the Government has agreed with the International Monetary Fund (IMF) to increase tax collection as a condition of Kenya receiving Sh250 billion in loans.

The Government would have cut spending, but given that it is incumbent upon it to help stimulate the economy it wants to keep the engines turning. 

Kenyans on social media have also decried the manner in which the Government is pushing on with a referendum, which the Independent Electoral and Boundaries Commission estimates will cost Sh14 billion.

Kenya, according to government officials, may get a vaccine against Covid-19 in February, a situation that will see an explosion in economic activities as people go about their business without fearing infection.

The economy has been devastated by Covid-19, dampening the avenues available to the government to raise cash.

As a result, the Treasury has been forced to tap into the highest amount it has ever borrowed through overdraft facilities from the Central Bank of Kenya, as well as look to multinational donors for a way out.

Fearing the worst, the country has approached the IMF and World Bank for a Sh400 billion loan, and expects to spend part of the money to repay some of its loans to foreign creditors.

Already, the IMF has flagged the country as being at high risk of defaulting given the adverse effects of the pandemic on the economy.

Covid 19 Time Series

 


Treasury Covid-19 Ukur Yatani
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