Manufacturers have protested omission of tax relief on corporate earnings in the emergency Bill set for debate by lawmakers next Tuesday, keeping the cost of operation high despite ravaging impact of Covid-19.
President Uhuru Kenyatta on March 25 directed the Treasury to draft legal changes to the Income Tax Act to cut corporation tax for companies registered in Kenya 25 from 30 percent.
The Tax Laws (Amendment) Bill 2020, presented to the National Assembly by Treasury secretary Ukur Yatani, does not contain the relief on corporate income tax, meaning Mr Kenyatta’s proposal will not have a legal backing unless the legislators include it through amendments.
Parliamentary Budget Office (BPO) — a unit which advises lawmakers on financial, budgetary and economic matters — estimates in their report ahead of the Covid-19 tax reliefs Bill that reduced corporation tax will cost the taxman an Sh45.69 billion in three months through June.
The presidential directive seeks to only cushion resident firms, with the rate on companies not incorporated in Kenya left intact at 37.5 percent.
“Despite the Presidents directive to reduce corporate tax for companies from 30 percent to 25 percent, the Bill failed to do so by omitting the percentage to facilitate the reduction,” Kenya Association of Manufacturers (KAM) says in a letter to Mr Yatani.
Other tax incentives by Mr Kenyatta such as 100 percent tax relief for workers earning up to Sh24,000 and a cut in pay-as-you-earn (PAYE) tax for top-bracket workers (those earning from Sh57,333 and above) to 25 from 30 percent have been included in the Bill.
The manufacturing will be among the sectors, which will be hardest hit by additional changes to the law contained in the Covid-19 Tax bill.
If approved by the Bill is approved by the MPs, large factories will lose the 30 percent rebate on electricity bills and the lower 15 percent corporation tax for those in plastics recycling. Factories making medicines and agricultural inputs as well as ordinary bread will also not claim a refund of input value-added tax after Mr Yatani proposed to remove them from zero-rated to exempt commodities.
“The move and timing of the introduction of the non-Covid related fiscal measures by the government, is ill-timed due to the current coronavirus crisis that has and is expected to further have severe effects to the country and global economy,” says KAM Phyllis Wakiaga.
“Arising from the above, this letter is to, therefore, request you to urgently instruct the National Assembly to only debate the Covid-19 fiscal measures in the Tax Laws (Amendment) Bill 2020 directed by the President on 25th March 2020 to mitigate the Corona Virus pandemic facing the country.”