WIXLIB

Deleted exemption provisionsProposed provisions: The Bill proposes to delete taxexemptions on some incomes and organizations. Most ofthese incomes relate to organizations or agreements that nolonger exist or agreement that have lapsed, making theexemptions obsolete. Some of these entities/agreementsinclude:― Tea Board of Kenya,― The Pyrethrum Board of Kenya,― The Sisal Board of Kenya,IncomeTax― The Kenya Dairy Board,― The Canning Crops Board,― The Central Agricultural Board,― The Pig Industry Board,― The Pineapple Development Authority,― The Horticultural Crops Development Authority,― The Kenya Tea Development Authority,― The National Irrigation Board,― The Mombasa Pipeline Board,― The Settlement Fund Trustees,― The Kenya Post Office Savings Bank,All commencementupon assent― The Cotton Board of Kenya― Education grant paid by Government of UK under anagreement between the Governments of Kenya andUK.Deleted exemption provisions― Interest on a savings account held with the KenyaPost Office Savings Bank― Interest earned on contributions paid into theDeposit Protection Fund established under theBanking Act (Cap. 488).― Interest paid on loans granted by the LocalGovernment Loans Authority established under theLocal Government Loans Act .― Income from the East African Power and LightingCompany;― The income received by way of remuneration underany contract which was entered into consequentupon financial assistance from International Cooperation Administration; and― Interest on any tax reserve certificates which maybe issued by authority of the Government.Part II of to the First Schedule has been repealed in itsentirety.Implication: This section constituted income ofsecurities and interest from institutions which no longerexist such as income from Sceptre Trust Limited andColonial Development Corporation.― Interest, management and professional fees derived inKenya by a Non-resident entity without permanentestablishment paid by Tana River DevelopmentAuthority― The income derived in Kenya by the GeneralSuperintendence Company Limited, a companyincorporated in Switzerland, under the agreement fcompany and Central Bank of KenyaTax Laws (Amendment) Bill Analysis8

Previously exempt incomesubject to taxOther income that will now be subject to tax include:― Gains arising from trade in shares of a venturecompany earned by a registered venture capitalcompany within the first ten years from the dateof first investment in that venture company bythe venture capital company;IncomeTaxAll commencementupon assent― Interest income accruing from all listed bonds,notes or other similar securities used to raisefunds for infrastructure and other socialservices, as well similar income under Greenbonds standards and guidelines that hasmaturity of at least three years;― Interest income generated from cash flowspassed to the investor in the form of assetbacked securities.Implication: the removal of the tax exemptionon infrastructure bonds will make governmentdebt less attractive to investors making it harderfor the government to meet its debt fundingrequirements.Expanding Capital Gains Tax netProposed Bill: The bill proposes to only exempt gainsderived from the transfer of property done for the purposeof administering the estate of a deceased person providedthe transfer is completed within two years of the death ofthe deceased.However, where there is an ongoing court case regardingsuch estates, the exemption period shall be a maximum oftwo years after the finalization of such court cases.Other repealed exemptions include gains from:a)the transfer of a private residence which the owner hasoccupied continuously for three years;b)the transfer of land with a value of less than KES3million;c)the transfer of agricultural land of less than 50acresImplication: The proposals are part of governmentmeasures to bring to the tax base property disposals byindividuals. The measure targets small value disposalswhich were previously exempted from tax.― Income of the National Social Security Fund(NSSF)Implication: While the proposals are reasonableon the basis that most of these entities nolonger exist, the NSSF fund will be specificallyaffected by this proposal since taxing its incomewill result in reduced amounts available forpayout to our ageing members of the society.Tax Laws (Amendment) Bill Analysis9

Pay AsYou Earn

Enhancement of PAYE tax bands andpersonal reliefProposed provision : The Tax Laws (Amendment) Bill 2020proposes to expand the Individual PAYE bands as follows:New Tax BandsPay AsYouEarnAll commencementupon assenti.The new tax rates are as follows:ii.For withdrawals after the expiry of fifteen years fromthe date of joining the fund:Old Tax BandsNew Tax RateFirst KES 288,00010%First KES 147, 58010%Next KES 200,00015%Next KES 139,04315%Next KES 200,00020%Next KES 139,04320%Above KES688,00025%Next KES 139,043Above 564,709Old Tax RatesFirst KES 400,00010%First KES 400,00010%Next KES 400,00015%Next KES 400,00015%25%Next KES 400,00020%Next KES 400,00020%30%Above KES1,200,00025%Next KES 400,00025%Above 1,600,00030%Further the bill proposes to increase the personal relief fromKES 16,896 to KES 28,800. Effectively all income belowKES 28,800 per month will be exempt from tax.Implication: The above changes will increase the taxpayer’sdisposable income. Previously only income below KES13,486 was exempt from tax, with the changes effectivelydoubling the tax exempt income. For a person earning amonthly income of KES 40,000, the change will result inadditional take home of approximately KES 2,600.Being annual rates, the above change will impact 2020income once it is approved. It is will be important to clarifythe implications of the change on persons who have paid taxon the first three months under the old rates.Enhancement of tax rates in respect ofpayments or withdrawals from pensionsProposed provision : In line with the changes to thePAYE bands, the Bill also proposes to enhance the taxbands for taxation of withdrawals from NSSF, registeredpension funds and provident funds where thewithdrawals are in excess of the tax-free amountsspecified under Section 8(4) and 8(5) of the Income TaxAct, in any one year.iii.For withdrawals before the expiry of fifteen years fromthe date of joining the fund:New Tax RateOld Tax RatesFirst KES 288,00010%First KES 147, 58010%Next KES 200,00015%Next KES 139,04315%Next KES 200,00020%Next KES 139,04320%Above KES 688,00025%Next KES 139,04325%Above 564,70930%In addition to the above, the Bill also proposes to reduce thetax rate on surplus funds withdrawn by or refunded to anemployer in respect of registered pension or registeredprovident funds from 30% to 25%.Implication: As is the case with the enhancement of thePAYE bands, this change will result in an increase in thedisposable income for tax payers. It will also act as anincentive to save for retirement due to the enhanced postretirement take-home.Tax Laws (Amendment) Bill Analysis11

Tax on Bonus for Low Income EarnersProposed provision : The bill proposes to delete the section exempting from tax, income from employment paid inthe form of bonuses, overtime and retirement benefits to employees whose taxable employment income beforebonus and overtime allowances does not exceed the lowest tax band provided under Head B of the Third Schedule.Implication: This amendment seeks to tax the bonuses, overtime and retirement benefits which had initially beenexempted through the Finance Act 2016. This will result in a reduction of disposable income for low income earners.Previously, employees whose taxable employment income before bonus and overtime allowances did not exceed thelowest tax band (below KES 12,298 per month) would not be subject to PAYE on receipt of bonuses and overtimeallowance over and above their basic pay.Pay AsYou EarnAll commencementupon assentFollowing the expansion of the PAYE bands, the Bill now proposes to eliminate the tax exemption on bonuses andovertime allowances paid to low income employees. Given the current difficult economic environment , werecommend that the incentive be retained especially given that it rewards those employees in the low incomecategory who work hard and are recognized by their employers for dedication to their jobs. Such dedication will becritical as the country seeks to recover from the effects of COVID-19.Taxation of previously Exempt Income & PersonsProposed provision : The bill proposes to delete the following exemptions:i.The emoluments of any officer of the Desert Locust Survey who is not resident in Kenya;ii.Employment Income of US Citizens who are employed by the Department of Agriculture of the US on researchwork in co-operation with Government;iii.Foreign allowances for any officer of the Government or of the Community paid from public funds in respect ofhis office;iv.Payment to a person employed in the public service in respect of disturbance made in connection with a changein the constitution of the Government of a Partner State.; andv.An individual’s income relating to sale of shares in the stock or funds of the Government, the High Commissionor the Authority established under the Organization or the Community, shares of a local authority, privateresidence and property (being land) transferred.Implication: This amendment seeks to broaden the tax base since individuals and income that were previouslyexempt are now subjected to tax. However, the move will also eliminate exemptions which are no longer applicableespecially those that relate to former employees of defunct East Africa Community which was dissolved in 1977.Tax Laws (Amendment) Bill Analysis12

WithholdingTax

Withholding Tax on DividendsProposed provision : The Bill proposes to increase theWHT rate on dividends paid to non-residents personsfrom 10% to 15%.Implication: The proposed increase claws away thebenefit from the proposed reduction of the corporationtax rate, with foreign persons operating in Kenya throughsubsidiaries or branches now subject to higher tax ratescompared to local companies.WithholdingTaxAll commencementupon assentThe proposed change will now favour companies fromcountries with whom Kenya has signed Double TaxAgreements as they will continue to enjoy lower WHTrates.The higher dividend withholding tax rates will make itharder for Kenya to attract foreign direct investmentsespecially in the era of the Africa Continental Free Tradearea where companies can set base in countries withadvantageous corporation tax regime but still have accessto the wider Africa market, including Kenya.WHT on re-insurance premiumsProposed provision : The Bill proposes a change to thecharging section to provide for the imposition of tax at therate of 5% on reinsurance premiums paid to non-residents.Implication: Taxation of reinsurance premiums paid to nonresident persons was introduced through the Finance Act2019 but the changes were not made to the charging sectionwith the implication that the charge could not beimplemented. The current change seeks to address thisomission.WHT on marketing, salespromotion & advertisingProposed provision : The Bill proposes to amend theITA by expanding the services subject to WHT toinclude marketing, sales promotion and advertisingservices provided by non-resident persons at the rateof 20%.Implication: While the marketing and sales promotionservices were already subject to tax under paymentsfor professional and management fees, the changebrings clarity on the taxation of advertising servicesand it is now clear that all payments to non-residentpersons for advertising services attract withholdingtax.WHT on transportation of goodsProposed provision : The Bill proposes to expand theWHT base by including transportation of goods bynon-residents among the services which are subjectto WHT at the rate of 20%. However, air and shippingtransport services will be excluded from the change.Implication:The change will increase cost of transportation by nonresidents persons reducing the attractiveness ofKenyan ports especially for transshipment cargo.The amendment is also untimely as transportationservices are critical especially during the currenteconomic downturn. It would be prudent if thegovernment considers deferring its implementation.Tax Laws (Amendment) Bill Analysis14

ValueAdded TaxAct

Definition: ordinary breadValueAddedTax ActAll commencementupon assentProposed provision : The Bill has proposed an amendmentto the definition of ordinary bread to mean bread containingonly the following ingredients; wheat flour, sugar, salt,yeast, fat or oil, bread improver, preservatives and water.The bill also proposes to exempt the supply of ordinarybread from VAT.Implication:The expanded definition implies that bread made out of anyother ingredients other than those specified in the bill willnow be VATable.The supply of ordinary bread is currently zero rated and theproposal to move it to exempt status will increase the priceof bread as the input VAT incurred in the manufacturingprocess will not be claimable. The proposed change isuntimely especially when many citizens are facingeconomic difficulties as a result of the COVID-19 relatedeconomic down-turn.Issuance of credit notesProposed provision : The amendment proposes to allowfor issuance of credit notes within 30 days after thedetermination of a commercial dispute in a court of law inregards to the price payable on the tax invoice. This is inaddition to the current legislation that allows a credit noteto be issued within six months of the relevant tax invoice.Implication:This provision aims to provide relief to suppliers ininstances where court resolution of disputes in regards tothe price payable on the tax invoice takes more than sixmonths from the date of supply. This will ensure thatsuppliers can get a relief on determination of such cases.This proposal should be expanded to include disputesconcluded through arbitration which is now one of thepreferred methods of resolving disputes.VAT on Fuel & Liquid Petroleum GasProposed provision : The bill has proposed to includeexcise duty, fees and other charges in computing thetaxable value for fuel.The bill has also proposed to introduce VAT on LiquidPetroleum Gas (LPG).Implication: This proposal will increase the cost of fueland LPG which may counteract the reduction of the VATrate from 16% to 14%. Further, the inclusion of exciseduty and other charges in the computation of the VAT onfuel will significantly increase the VAT cost of fuelnegating the decision to charge a lower VAT rate of 8%.This will trigger an increase in consumer prices of mostproducts that use fuel in the manufacturing process aswell as thousands of homesteads, hotels that rely LPG assource of cooking energy.Keeping of recordsProposed provision : The bill proposes that all personsmaintain records of transactions for a period of five years.Implication: The bill has now extended the scope ofmaintaining of records to capture all persons, whetherregistered for VAT or not. Previously, only VAT registeredpersons were required to maintain records for a period offive years.VAT: Refund on bad debtsProposed provision : The bill has proposed to reduce the timelimit of applying for a refund on bad debts from five years tofours years from the date of supply.Tax Laws (Amendment) Bill Analysis16

Definition: Tax rate changes (Goods - Zero-rated to Exempt)ValueAddedTax ActAll commencementupon assentDetailsNew rateOld rateMilk and cream, not concentrated nor containing added sugar or othersweetening matterExempt0%Vaccines for human and veterinary medicineExempt0%MedicamentsExempt0%Definition: Tax rate changes ( Goods - Zero rated to standard ratedDetailsNew rateOld rateAll inputs and raw materials whether produced locally or imported,supplied to manufacturers of agricultural pest control products uponrecommendation by the Cabinet Secretary for the time beingresponsible for agriculture.14%0%Inputs or raw materials for electric accumulators and separatorsincluding lead battery separator rolls whether or not rectangular orsquare supplied to manufacturers of automotive and solar batteries inKenya.14%0%Agricultural pest control products14%0%The supply of liquefied petroleum gas including propane.14%0%Tax Laws (Amendment) Bill Analysis17

Definition: Tax rate changes (Goods – Exempt to Standard Rated)ValueAddedTax ActAll commencementupon assentDetailsNewrateOldratePlants and machinery of Chapter 84 and 85 used for the manufacture of goods.14%ExemptTaxable supplies, excluding motor vehicles, imported or purchased for direct andexclusive use in the construction of a power generating plant, by a company, to supplyelectricity to the national grid approved by Cabinet Secretary for National Treasury uponrecommendation by the Cabinet Secretary responsible for energy.14%ExemptTaxable supplies, excluding motor vehicles, imported or purchased for direct andexclusive use in geothermal, oil or mining prospecting or exploration, by a companygranted prospecting or exploration license in accordance with Geothermal Resources Act,production sharing contracts in accordance with the provisions of Petroleum (Exploration 14%and Production) Act (Cap. 308) or mining license in accordance with the Mining Act (Cap.306), upon recommendation by the Cabinet Secretary responsible for energy or theCabinet Secretary responsible for mining, as the case may be.ExemptFertilisers of Chapter 3114%ExemptTaxable supplies, procured locally or imported for the construction of liquefiedpetroleum gas storage facilities with a minimum capital investment of four billionshillings and a minimum storage capacity of fifteen thousand metric tonnes asapproved by the Cabinet Secretary for National Treasury upon recommendation by theCabinet Secretary responsible for liquefied petroleum gas14%ExemptHelicopters14%Exempt8802.20.00 Aeroplanes and other aircraft, of unladen weight not exceeding 2,000 kg.14%Exempt8803.30.00 Other parts of aeroplanes and helicopters.14%Exempt8805.21.00 Air combat simulators and parts thereof.14%Exempt8805.10.00 Aircraft launching gear and parts thereof; deck-arrestor or similar gear andpartsthereof.14%Exempt8805.29.00 Other ground flying trainers and parts thereof.14%ExemptMade-up fishing nets of man-made textile material of tariff No. 5608.11.00.14%ExemptTax Laws (Amendment) Bill Analysis18

Definition: Tax rate changes (Goods – Exempt to Standard Rated)ValueAddedTax ActAll commencementupon assentDetailsNewrateOldrateMosquito nets14%ExemptMaterials, waste, residues and by-products, whether or not in the form of pellets, andpreparations of a kind used in animal feeding14%ExemptSpecialized equipment for the development and generation of solar and wind energy, includingdeep cycle batteries which use or store solar power upon the recommendation of the CabinetSecretary responsible for matters relating to energy.14%ExemptTractors other than road tractors for semitrailers.14%ExemptInputs or raw materials supplied to solar equipment manufacturers for manufacture of solarequipment

companies looking to list at the Nairobi Securities Exchange (NSE). These expenses include: Legal and other incidental costs relating to authorization and issue of shares for purchase by the general public; Legal and other incidental costs relating to listing of existing shares at the NSE; and