This archive report was first published on 13 June 2020.
On June 13, 2020, Treasury CS Ukur Yattani presented the 2020/21 budget in Kenya, promising to stimulate the economy and safeguard jobs and businesses.
The budget will be financed by tax revenue, financial aid, and debt, with tax revenue estimated to reduce slightly to Ksh1.621 trillion in FY 2020/21 compared to the target of Ksh1.64 trillion in FY2019/20.
However, these estimates remain overambitious given the prevailing economic conditions, including the COVID-19 pandemic, locust invasion, and floods that threaten food security.
Direct Tax Measures ¶
Effective January 1, 2021, the following direct tax measures will be implemented:
- The digital service tax of 1.5% will be introduced, taxing gross transaction values for businesses involved in selling electronic event tickets, software programmes, web hosting services, and downloadable digital content.
- A minimum tax of 1% will be imposed on the gross turnover for taxpayers who are carrying out business and earning revenue but their tax payable is lower than 1% of their gross turnover.
- The residential rental income tax bracket will be expanded from KSh10 million to KSh15 million, enabling more people to utilize the simplified tax regime.
- An additional duty will be introduced on goods entered for home use from EPZs.
- Interest income earned by a Home Ownership Savings Plan (HOSP) depositor will be fully taxable.
- Monthly or lump sum pension granted to a person who is 65 years of age or more, and bonuses, overtime, and retirement benefits paid to low-income employees will become taxable.
- The incomes of a registered HOSP which runs counter to the housing agenda and the incomes of the National Social Securities Fund (NSSF) may affect retirement savings.
Indirect Tax Measures ¶
The government has introduced a raft of tax measures to cushion taxpayers from the adverse effects of the COVID-19 pandemic.
However, the introduction of indirect taxes will see commodity prices rise, making life harder for financially strained households.
The VAT rate has been reduced from 16% to 14%, but the following products will be subject to standard-rated VAT:
- Plant, machinery, and equipment used in the construction of a plastics recycling plant.
- Tractors.
- Transfer of business as a going concern.
- Hiring/leasing/chartering helicopters.
- Supply of aircrafts, aircraft launching gear and parts, new pneumatic tyres for use in aircrafts, air combat simulators and parts.
- Insurance and securities brokerage services.
- One personal motor vehicle, excluding buses and minibuses of seating capacity of more than eight seats, imported by a public officer returning from a posting in a Kenyan mission abroad.
