Kenya Tax Alert

Kenya Tax Alert Tax Laws (Amendment) Act, 2020 April 2020 The President assented to the Tax Laws (Amendment) Bill, 2020 on 25 April 2020 thus giving it the force of law. The Tax Laws (Amendment) Act, 2020 has introduced amendments to the Income Tax Act, Value Added Tax Act, 2013, Excise Duty Act, 2015, Tax Procedures Act, 2015, Miscellaneous Fees and Levies Introduction Act, 2016, Kenya Revenue Authority Act, 1995 and the Retirement Benefits Act, 1997. Corporate Income Although it was expected that the Act would focus on provisions giving effect to the tax relief Tax measures announced by the President when he outlined the Government’s initiatives aimed at addressing the economic impact of the COVID-19 pandemic, it is rather surprising that the Act Personal Income Tax contains a raft of changes to the tax laws that will have a significant impact on taxpayers. Perhaps the National Treasury seized the opportunity to push through changes that would have been under Turnover Tax consideration as part of the proposed Income Tax Bill and subsequent reviews to other tax laws. It appears that the National Treasury is seeking to enhance revenue collection to bridge the budget Withholding Tax deficit by radically reducing tax incentives and benefits. Although there may be merit in some of the changes, the timing is questionable given the economic distress facing most taxpayers as a result of Value Added Tax the COVID-19 pandemic. Key changes introduced by the Act include: Excise Duty • Reduction of income tax rates for both individuals and corporate entities; • Reduction and/or elimination of tax incentives such as investment allowances and exemptions; Miscellaneous Fees & • Levies Withholding tax measures aimed at taxing income of non-residents and income accrued from digital platforms; and • Reduction in the number of VAT zero rated and VAT exempt products. Tax Procedures This publication summarizes our analysis of the amendments introduced by the Act and their impact. Other measures We have also included in the publication the amendments to the tax statutes introduced by the Business Laws (Amendment) Act, 2020 which was assented to on 18 March 2020. Contacts The publication contains general information only and Deloitte is not, by means of this publication rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. While all reasonable care has been taken in the preparation of this publication, Deloitte and its associates accept no responsibility for any errors it may contain, whether caused by negligence or otherwise, or for any loss, however caused or sustained by any person who relies on it. © 2020 Deloitte & Touche 2 Corporate Income Tax Reduction of the resident corporate tax rate Introduction The measure The Act has amended Paragraph 2 (a) Head B of the Third Schedule to the Income Tax Act by Corporate Income introducing a resident corporate tax of KES 5 for every KES 20, which translates to a corporate tax rate Tax of 25%. The reduced resident corporate tax rate applies from the year of income 2020. Personal Income Tax Who will be affected All resident corporates Turnover Tax When Withholding Tax Effective 25 April 2020 Value Added Tax Our view The reduction of the resident corporate tax rate is a welcome move for resident corporates, as it will Excise Duty reduce their corporate tax and consequently increase the distributable profits to shareholders or retained earnings available for re-investment. Companies with a year of income ending on or after 25 Miscellaneous Fees & April will benefit from the lower rate Levies It would be advisable for companies to review their basis for computation of the instalment tax for this Tax Procedures year to ensure they do not end up in significant tax overpayments due to the rate adjustment and the current trading conditions. Other measures The corporate tax rate for non-resident companies (37.5%) has not been changed, hence, the significant difference in rates may impact decisions of foreign investors on whether to operate as a Contacts branch or subsidiary while taking into account the revised rate of tax on dividends paid to non- resident shareholders. © 2020 Deloitte & Touche 3 Corporate Income Tax Repeal of the preferential tax rates applicable to newly listed entities Introduction The measure The Act has amended the Income Tax Act by repealing the following provisions under Head B of the Corporate Income Tax Third Schedule: a. Paragraph 2(c), which prescribed a reduced corporate tax rate of 27% for the first 3 years after Personal Income Tax listing, where at least 20% of the issued share capital of a company is listed; Turnover Tax b. Paragraph 2(d), which prescribed a reduced corporate tax rate of 25% for the first 5 years after listing, where at least 30% of the issued share capital of a company is listed; Withholding Tax c. Paragraph 2(e), which prescribed a reduced corporate tax rate of 20% for the first 5 years after listing, where at least 40% of the issued share capital of a company is listed; and Value Added Tax d. Paragraph 2(g)(i), which prescribed a reduced corporate tax rate of 25% for the first 5 years after Excise Duty listing, in the case of a company introducing its shares through listing or any securities exchange via introduction. Miscellaneous Fees & Levies Who will be affected Recently listed entities and companies wishing to issue their securities to the public Tax Procedures When Other measures Effective 25 April 2020 Contacts © 2020 Deloitte & Touche 4 Corporate Income Tax Repeal of the preferential tax rates applicable to newly listed entities...cont. Introduction Our view Corporate Income The repeal of the preferential rates may be informed by the reduction of the normal corporate tax Tax rate from 30% to 25%. Whereas it could be argued that this move could discourage listing of securities, it is worth noting Personal Income Tax that the number of new listings at the stock exchange has dried up in recent times and therefore the National Treasury may have concluded that the tax incentives have not been a game changer in Turnover Tax driving new listings. Withholding Tax Overall, the measure is in line with recent moves towards fiscal consolidation with some quarters being of the view that tax incentives are costing the Government much needed revenue. This is a Value Added Tax subject that remains open to debate. Excise Duty Miscellaneous Fees & Levies Tax Procedures Other measures Contacts © 2020 Deloitte & Touche 5 Corporate Income Tax Repeal of the reduced corporate tax rate for companies operating recycling plants Introduction The measure The Act has deleted Paragraph 2(l) of Head B of the Third Schedule to the Income Tax Act, which Corporate Income Tax prescribed a reduced corporate tax rate of 15% for the first 5 years for any company operating a plastics recycling plant. The reduced rate was introduced through the Finance Act 2019 and has been effective since 7 November 2019. Personal Income Tax This amendment means that entities operating plastics recycling plants will be taxable at the normal Turnover Tax corporate tax rate of 25%. Withholding Tax Who will be affected All companies operating a plastics recycling plant Value Added Tax When Excise Duty Effective 25 April 2020 Miscellaneous Fees & Our view Levies The reduced corporate tax rate was aimed at reducing the negative impacts of plastic on the Tax Procedures environment by encouraging the recycling of plastics. Other measures The repeal of the reduced rate, barely a year after its introduction, calls into question whether the objective has been achieved. But as indicated elsewhere, this is in line with the move to reduce tax Contacts incentives in order to shore up Government revenue. © 2020 Deloitte & Touche 6 Corporate Income Tax Repeal of the special corporate tax rate for companies operating under a special operating framework Introduction The measure The Act has deleted Paragraph 2(k) of Head B of the Third Schedule to the Income Tax Act, which Corporate Income Tax restricted the maximum corporate tax rate for a company engaged in business under a special operating framework arrangement with the Government to the rate specified under the specific agreement. Personal Income Tax The rate under already executed agreements shall however continue to apply for the unexpired Turnover Tax period of the Agreement. Withholding Tax Who will be affected Companies operating under a special operating framework with the Government such as projects Value Added Tax being executed under Public-Private Partnership (PPP) agreements Excise Duty When Miscellaneous Fees & Effective 25 April 2020 Levies Our view Tax Procedures As with other similar measures, this is a move to reduce tax incentives extended to various entities. It is positive that already existing arrangements have been protected, as any changes post-execution Other measures would adversely impact project economics. Contacts It is expected that this change may reduce the attractiveness of some PPP projects that are in the pipeline. © 2020 Deloitte & Touche 7 Corporate Income Tax Repeal of the electricity rebate Introduction The measure The Act has deleted Section 15(2)(ab) of the Income Tax Act, which entitled manufacturers to an extra Corporate Income Tax deduction of up to 30% of their electricity cost. Who will be affected Personal Income Tax All manufacturers. Turnover Tax When Withholding Tax Effective 25 April 2020 Value Added Tax Our view Excise Duty The electricity rebate was introduced through the Finance Act 2018 and only became operational upon gazettement of the guidelines on 31 July 2019.

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