A look at some of the Tax changes that become effective on January 1, 2020, as a result of the Finance Bill 2019 that was signed by the President on 7 November 2019.
The highlight was the repeal of Section 33B of the Banking Act which had put an interest rate cap on commercial bank loans, but there are also other taxation clauses of note.
- Import Declaration Fee levy has been increased from 2% to 3.5%. Also, the Railway Development Levy, which is an important component of paying for the SGR, has been increased from 1.5% to 2%.
- Companies that list under the Nairobi Securities Exchange’s GEMS program for the next three years can be forgiven tax penalties and interest, provided they pay the principal amount. This move to encourage listing at the NSE became effective in November 2019. But if they delist within five years, that window lapses and all taxes due before listing will again become payable.
- Taxes also go up for cigarettes, electronic cigarettes, fruit wines and spirits.
- Motor vehicle excise taxes go up from 20 to 25% for cars over 1500 cc, and that for station wagons and race cars go up from 30 to 35%, but for electric-powered motor vehicles, that goes down from 20 to 10%.
- Sports betting companies take another hit with a 20% tax lopped on to each bet amount, regardless of the outcome of the wager.
- New economy taxes: The new year ushers in taxes on the digital economy market place – this encompasses “platforms that enable interaction between buyers and sellers of goods & services through electronic means” who are now liable for income tax and value-added tax (VAT). Along with that, a taxpayer PIN is mandatory when one is registering for a paybill and till numbers (to process mobile payments) through a telephone company
- Real Estate Investment Trusts (REIT’s), which were exempt from corporate tax are now also exempt from income tax.
- There is an income tax exemption for people who register under the Government’s Ajira Digital (online work) program from January 2020 to December 2022.
- Green bonds: Interest income on all listed infrastructure bonds, or green bonds,that are a minimum three years to maturity will be exempt from income tax as will income on the National Housing Development Fund.
- Turnover tax of 3% has been reintroduced and will be payable monthly by any business whose turnover does not exceed Kshs 5 million (~$50,000) in any year. EDIT – does not apply to companies already registered for VAT or those earning employment income rental income, engaged in management & professional services and limited liability companies. There is also a Presumptive Tax, a new tax that is 15% of the annual fee paid for a license e.g. to operate in Nairobi County and that can be offset when paying the turnover tax.
- Environmental stuff: Plastic recycling companies will get a preferential corporate tax rate of 15% for five years and machinery and equipment used for plastic recycling plants are now VAT exempt. But, going the other way, equipment for the development of solar and wind energy, including batteries, which were previously exempt from VAT, now require the Cabinet Secretary for Energy to approve any such exemptions.
- A taxpayer PIN is now mandatory when one is renewing membership in a professional body or with any licensing agency.
- Mitumba and shipment consolidators are now recognized – if they have warehouses in the country of origin and Kenya, and have no history of dealing with substandard or counterfeit goods.
Meanwhile, the President said at the Jamhuri Day celebrations (on December 12) that a mortgage scheme he had previously proposed, and which entailed a deduction of 1.5% of salaries, would not be mandatory. Parliament resumes in February 2020 and we shall see if they amend that.
Extracts from reports done by KPMG East Africa, RSM Eastern Africa LLP and KN Law LLP .