Economy

Uhuru sets date for reversal of corona tax cuts

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President Uhuru Kenyatta. PHOTO | PSCU

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Summary

  • President Uhuru Kenyatta announced Monday workers would continue enjoying a maximum Pay As You Earn (Paye) income tax rate of 25 percent instead of the normal 30 percent until January 2021.
  • The tax reliefs, which took effect in April, were aimed at lowering the cost of basic items while providing workers with additional income to spur consumption and boost retailers’ flagging sales.
  • The decision to extend the tax reliefs came amid fears that Kenya would bow to pressure from the International Monetary Fund (IMF) to scrap them to protect the country’s revenue collection targets.

Income tax, value-added tax and sales levy cuts imposed to cushion workers, households and businesses against the Covid-19 pandemic have been extended beyond December even as bars are allowed to resume operations as part of phased re-opening of the economy.

President Uhuru Kenyatta announced Monday workers would continue enjoying a maximum Pay As You Earn (Paye) income tax rate of 25 percent instead of the normal 30 percent until January 2021.

“To continue cushioning low-income earners, the National Treasury maintains the 100 percent tax relief for person earning a gross monthly income of up to Sh24, 000 beyond the sunset date of December 31,” Mr Kenyatta said.

Cuts on VAT to 14 percent from the traditional 16 percent will also be extended until January 2021 while businesses will continue paying a lower 25 percent corporate tax instead of 30 percent until January 31, 2021 as the State continues to cushion enterprises grappling with depressed revenues due to the pandemic.

The tax reliefs, which took effect in April, were aimed at lowering the cost of basic items while providing workers with additional income to spur consumption and boost retailers’ flagging sales.

The decision to extend the tax reliefs came amid fears that Kenya would bow to pressure from the International Monetary Fund (IMF) to scrap them to protect the country’s revenue collection targets.

The IMF had urged the government to reinstate the higher taxes once Covid-19 eases, stating that the cuts would cost the Kenya Revenue Authority (KRA) and compromise the State’s ability to deal with emergencies and spending on development projects.

According to projections, the taxes reliefs will cost the KRA Sh172 billion in collections, further piling pressure on the taxman’s efforts to meet targets.

The KRA raised Sh188.08 billion in the two months to August, with the revenues falling 15 percent from similar period last year, highlighting the effects of the disease on economic activities.

The President meanwhile allowed bars to resume operations until 10 p.m. as part of the second phase of the re-opening of the economy.

The bars had been closed since March, prompting warnings of job losses and potential bankruptcies from alcohol manufacturers and distributors.

Giant brewer East African Breweries Limited #ticker:EABL (EABL) reported a drop in net profit for the year ended June to a six-year low on the effect of the closure of bars, forcing it to freeze final dividends.

The brewer’s net profit for the period dropped 39 percent to Sh7 billion for the year ended June 2020, with net sales for the second half of the year having plunged by 29 percent. Shareholders of the brewer missed out on the final dividend, which has historically been between Sh5.50 and Sh6 per share as the firm adopts a cash preservation mode. EABL had also warned that continued closure of bars would cost workers, sorghum farmers and government Sh9.1 billion in taxes due to disruptions in the alcohol value chain.

Mr Kenyatta extended the curfew by a further 60 days but adjusted the effective hours to between 11 p.m. and 4 a.m. starting today.

But the re-opening of schools remains uncertain as the head of State said that the decision will be based on authorities guaranteeing the safety of learners.

The Ministry of Education last week wrote to the Ministry of Health asking it to start fumigating learning institutions that have been used as isolation centres for Covid-19 patients in the anticipated reopening of schools.

“Learning institutions will only be reopened when we are guaranteed safety of our children… I call on the Cabinet Secretary for Education to issue the calendar for 2020 academic year if it is going to be or if is going to be 2021,” the President said.

Kenya had by Monday confirmed 38,168 corona positive cases 700 deaths after nine people succumbed on Sunday.