MOPPING UP CENTS

Gas and bread to go up in Covid-19 tax proposals

Tax Laws (Amendment) Bill, 2020 to herald season for costly basic commodities

In Summary
  • The government is mopping up more funds for the Covid-19 emergency and to sustain operations.
  • It is going to extremes of taxing disturbance allowances, bonuses, overtime and retirement benefits for those paid more than Sh24,000 per month.
A customer picks tomatoes from a shelf at Carrefour Supermarket in 2019. /ENOS TECHE
A customer picks tomatoes from a shelf at Carrefour Supermarket in 2019. /ENOS TECHE

Kenyans should brace for tougher economic times ahead following adjustments to tax laws removing several exemptions that brought relief to traders.

The changes in the Tax Laws (Amendment) Bill, 2020, will herald a season of costly purchases for consumers already hamstrung by the coronavirus pandemic.

The National Assembly is expected to hold a special sitting next Wednesday to go through all stages of the bill by Leader of Majority Aden Duale.

 
 
 
 
 

The Treasury has been running low on cash for some time, with latest reports showing there was only Sh2.8 billion in the Exchequer as of February 28.

With the coronavirus taking a toll on its revenue projections and income streams, Treasury boss Ukur Yatani said the National Treasury would have to mop up funds from other sources.

A chunk of state resources will be dedicated to the Covid-19 emergency response and to sustain operations.

In the wake of the strained cash flow, the government is going to extremes of taxing disturbance allowances, bonuses, overtime and retirement benefits for those paid more than Sh24,000 per month.

Money paid to public officers in respect of allowances for foreign trips will also be considered taxable income.

Interest on savings accounts held with the Kenya Post Office Savings Bank will also be included as taxable income.

Further, mortgages will attract tax as well as loans by county authorities and contributions paid into the Deposit Protection Fund.

 
 
 
 
 

Various state agencies that have been paying no tax on their income will be charged the same once the Bill is passed.

Car dealers will be charged a processing fee of Sh10,000 on all motor vehicles prior to clearance, excluding motorcycles imported or purchased duty free.

President Uhuru Kenyatta recently spelt out reliefs to cushion the country’s economy, among them a reduction of VAT to 14 per cent, rollout of emergency response fund, and tax holidays.

But the reliefs in the Bill are only for businesses with a turnover of less than  Sh500,000, which will not be subject to turnover tax, and milk which remains VAT exempt.

The income of incorporated companies will be subject to turnover tax.

The income tax bands have equally been adjusted so that the lowest - at Sh400,000, is subject to 10 per cent tax annually.

An array of medical equipment and medicines has also been granted tax waivers – ostensibly to boost supplies to hospitals.

The law further proposes the removal of presumptive tax –payable by a resident whose turnover from business does not exceed Sh5 million during a year of income.

It seeks to remove the exemption on basic commodities in changes that will affect farmers a great deal.

The Bill proposes to remove VAT exemptions on ordinary bread, cassava and wheat flour, and maize flour containing cassava.

Bread containing wheat flour, sugar, salt, yeast, fat or oil, bread improver, preservatives and water will be affected.

Goods and services not exempt from VAT will attract a 14 per cent tax charge or duty as specified in related laws.

Prices of fertilisers, LPG cooking gas, power generators, fishing nets of man-made textile, animal feeds, and biogas as well as solar equipment will go up.

Makers of clean cooking stoves will also bear the brunt of the new tax measures, which will also extend to supplies of stoves, grates, barbeques, braziers, gas-rings, plate warmers and similar non-electric domestic appliances.

The government further targets to remove reliefs that were given to companies that supported President Kenyatta’s green energy agenda.

In this regard, supplies for use in the construction of power-generating plant that feeds to the national grid will attract VAT.

The same will apply to companies that import or purchase machinery for exclusive use in geothermal, oil or mining prospecting or exploration.

Tax holidays will also end for LPG gas storage facilities with a capital investment of Sh4 billion and storage of 15,000 metric tonnes.

Animal feeds made from materials, waste, residues, and by-products will be charged VAT as well as specialised solar equipment and accessories.

This will affect solar water heaters and deep cycle-sealed batteries which exclusively use or store solar power.

ICT companies that have enjoyed tax holidays on parts imported or purchased locally for the assembly of primary school laptop tablets will also lose.

Tractors, plastic bag biogas digesters, leasing of biogas producing equipment, and goods for special economic zones of more than 100 acres will no longer be VAT exempt.

Inputs or raw materials locally purchased or imported by manufacturers of agricultural machinery and implements will also be charged tax.

Taxes will also be charged on chemicals, reagents, films, film strips and visual aid equipment imported or purchased by the National Museums of Kenya.

Investors putting up hotels will be required to pay tax for materials for direct and exclusive use in the construction of tourism facilities, recreational parks, convention and conference facilities.

Inputs for the manufacture of pesticides and materials for the construction of grain storage that have been duty-free will now attract tax.

Insurance agencies and brokerage, stock exchange brokerages will also attract a tax charge; reliefs only extended to tea and coffee brokerage services.

The government is also seeking to tax services provided to aid the construction and infrastructural works in industrial parks of over 100 acres.

In the proposal, entry fees into the national parks and reserves, services of tour operators, excluding in-house supplies, will be taxed.

State corporations that now face taxation include agencies that were turned into directorates of the Agriculture and Food Authority (AFA).

They include Tea Board of Kenya, the Pyrethrum Board of Kenya, the Sisal Board of Kenya, and the Kenya Dairy Board, the Pineapple Development Authority and the Horticultural Crops Development Authority.

Income earned by Kenya Tea Development Authority, National Irrigation Board, Mombasa Pipeline Board, Settlement Fund Trustees, Kenya Post Office Savings Bank, and the Cotton Board of Kenya will now be taxed.

In the bid to expand revenue from income taxes, the National Treasury also wants the inclusion of certain items that are normally deducted from income.  

Incomes by those dealing in securities exchange operating in Kenya will now be subject to taxation.

This will extend to income by contractors taking part in the construction of a public school, hospital, road or any similar kind of social infrastructure.

Club subscriptions paid by an employer on behalf of an employee will now be included as income as well as annual subscriptions to trade associations.

Legal costs relating to the authorisation and issue of shares, debentures or similar securities offered for purchase by the general public will also be treated as taxable income.

This will be the case of expenditure on legal costs and other incidental expenses, for the purposes of listing on any securities exchange operating in Kenya.

Reliefs on deposits in a registered home ownership savings plan have also been scrapped, save for hotel buildings certified as industrial buildings.

The Agriculture Society of Kenya will also remit taxes on profits or gains from any exhibition or show held.

ASK has not been paying tax on the earnings as well as interest on investments of such society.

Taxes will also be charged on income raised in interest on any tax reserve certificates which may be issued by the authority of the government.

Payments in terms of emoluments of any officer of the Desert Locust Survey - who is not resident, will also be taxed.

The government is seeking to treat as income for civil servants, any education grant paid by the United Kingdom under any agreement with Kenya.

Earnings accrued in searching for a natural source in Kenya of geothermal energy or on investigations concerning electric power generation will be affected.

Dividends received by a registered venture capital company operating in Special Economic Zone enterprises, developers and operators licensed will also be taxed.

Investors will part with taxes on interest income accruing from all listed bonds, notes or other similar securities used to raise funds for infrastructure and other social services.

This will be so if such bonds, notes or securities shall have a maturity of at least three years.

The government has also removed exemptions from Import Declaration Fee on gifts or donations by foreign residents to their relatives in Kenya.

Raw materials by developers or investors in industrial parks will attract the fee charged before clearance by customs.

Apart from the tax measures to raise more cash, the government targets drastic budget cuts which would affect several state agencies.

 

- mwaniki fm