08/06/2020
Kenya’s proposed Finance bill 2020
The Kenya finance bill 2020 was presented by the Chairperson of the Department Committee on Finance & National Planning in May 2020. The committee shall now receive stakeholder comments before tabling the bill for debate in the national assembly.
This bulletin will seek to explore the main provisions on this bill and the effect on businesses should these provisions be enacted as is by the national assembly. We however remain hopeful that some of the provisions which may be deemed as unfriendly to business will receive adequate consideration from the national assembly.
1. Tax on rental income
Currently rental income is subject to a 10% tax up to an income of sh 10 million. The bill proposes to increase this limit to sh 15 million. This proposal is expected to widen the tax net on qualifying rental income.
2. Minimum tax
The Bill has proposed a new tax to be known as minimum tax which is based on 1% of gross income and shall be payable by a person if the person’s income
a) income is not exempt under the ITA
b) income is not from employment, residential rent, capital gains, mining or oil exploration, capital gains or subject to turnover tax; or
c) Minimum tax payable is lower than the instalment tax payable.
This provision seems geared at ensuring that even businesses declaring a tax loss are subject to tax. It’s not clear if this tax will be an advance tax which could be utilised against future tax liability.
3. Non-deductible expenses –
The Bill proposes to disallow several previously allowed business expenses such as
• Expenses incurred for listing companies in the Nairobi stock exchange
• Capital expenses for the construction of social infrastructure such as schools, road s and hospitals.
• Subscriptions for members to clubs and trade associations\
• Legal and other expenses incurred in the issue of debentures and other similar securities.
4. Tax on retirement benefits
The bill also seeks to introduce tax on retirement benefits of retirees above 65 years of age. These benefits were previously exempted from tax. This proposal if enacted will adversely affect the affected sectors of the society.
5. Value added tax
• The Bill proposes to dis allow tax payers from deducting input VAT where the seller of the goods has not declared an output VAT from their side. This provision will be disadvantageous to tax payers because a tax payer has no way of knowing if the person selling to them has filed their output VAT. Besides tax payers have no mechanism of enforcing compliance from the sellers side.
• The bill also seeks to introduce VAT on cooking gas LPG from 0% to 14%. This will significantly alter the pricing of this commodity especially for poor households in the country
• The bill proposes to levy VAT at 14% on previously exempt specialized equipment for the development and generation of solar and wind energy. This may adversely affect efforts by the government to encourage use of clean energy.
6. Voluntary Tax Disclosure Programme
The Bill proposes a tax amnesty for tax payers doing Voluntary Tax Disclosure from 1 January 2021.This programme is proposed to run for three years from the date there on. Persons taking advantage of this amnesty will shall be granted interest and penalty waivers on taxes due.
Tax payers may want to use this opportunity to perform health checks so as to take advantage of this offer.
Should have any queries on this bulletin, please contact us on [email protected]
