Worried about how the coronavirus will negatively affect your business? Take a pause, president Kenyatta has a tax plan for you and is waiting on parliament’s approval.
With the curfew lockdown which is due to be implemented, it is evident that the economy stands to be dented; the transport industry, Agriculture industry, Jua kali industry, From the SMEs, all the way to corporate organizations. President, H.E Uhuru Kenyatta yesterday during his press briefing pointed out some incentives that have been put in place to help cushion citizens, businesses and the economy during this very hard global blow.
Kenya government tax incentives to SMEs to cushion against corona crisis
The National Treasury has the following immediate reliefs and increases disposable income to the people of Kenya, through:
- 100 % Tax Relief for persons earning a gross monthly income of up to Ksh. 24,000.
That means, effectively from April, you will get your full salary without the Pay As You Earn (Paye) deductions.
As from the 1st of April 2020, the government has given a directive that there will be no tax imposed on any persons earning a gross monthly income of up to Ksh. 24,000. Therefore no PAYE tax will be imposed on this particular group whatsoever.
2. A huge relief will be made to those earning a gross monthly income of Ksh 47,000.
the President’s directive stated that the PAYE tax will be reduced from 30% to 25%. Remembering that PAYE is done on a graduated scale, so if you earn a gross income of 150,000 there will be an extra Ksh 5000 in your pockets. Let us note that the gross income is the before-tax income. This is subject to being approved by the parliament.
3. Reduction of Resident Income Tax (Corporation Tax) from 30% to 25%
As a business, say you make a profit of Ksh 2,100,000 from your sales. These profits are minus expenses and they are purely what you gain as a business. For example, as a shoe manufacturing business, you sell your shoes for Ksh 7000 and the total expenses which include labor raw materials, rent, etc come to about Ksh 3500, therefore you will have made a profit of 3500. Considering you sold 600 pairs of shoes the whole year hence the profit will be 2,100,100. Therefore initially the Resident Income Tax which would be imposed would be 30% of your profit. However, with the new directive, you will pay Ksh 525,000 as the resident Tax leaving you with an extra Ksh105,000 in your pockets. All in all, this is still subject to parliamentary approval.
4. Reduction of the turnover tax rate from the current 3% to 1% for all Micro, Small and Medium Enterprises (MSMEs); as a means to cushion the businesses from the economic effects of coronavirus.
If you have a small business Micro, Small and Medium Enterprises (MSMEs) that gets revenues of less than 5 million per year, you pay turnover tax. As it has been this turnover tax has been at a rate of 3% p.a, but with the new directive this rate will go to as low as 1%, which means for a business whose revenues are 3 million every year the tax would be Ksh 90,000 however with the reduction of the turnover tax, you will pay Ksh 30,000. This is subject to parliamentary approval
5. Temporary suspension of the listing with Credit Reference Bureaus (CRB) of any person, Micro, Small and Medium Enterprises (MSMEs) and corporate entities whose loan account fall overdue or is in arrears as of 1st April 2020
Therefore, the government has bought time to the individuals who are currently not in a position to make these payments for various reasons and give them an opportunity to take up more debt, due to some of the challenges in business opportunities all over the country an effect of the Covid-19.
6. The National Treasury shall cause immediate reduction of the VAT from 16% to 14%, effective 1st April 2020. The VAT works by imposing a 16% additional charge on any product or service that entirely goes to the government. For instance, you sell a product that is worth Ksh 50,000, you will include 16% to the Ksh 50,000 making it Ksh 58,000 whereby the Ksh 8000 entirely goes to the government as tax.
All Ministries, Departments, and agencies shall cause the payment of at least Ksh. 13 Billion of the verified pending bills, within three weeks from the date hereof. This will help the cash flow situation of most businesses.
The Kenya Revenue Authority shall expedite the payment of all verified VAT refund claims amounting to Ksh.10 Billion within 3 weeks; or in the alternative, allow for offsetting of Withholding VAT, in order to improve cash flows for businesses.
The Central Bank of Kenya additionally rolled out the following tax Measures:
I. The lowering of the Central Bank Rate (CBR) to 7.25% from 8.25% which will prompt commercial banks to lower the interest rates to their borrowers, availing the much needed and affordable credit to MSMEs across the country.
II. the rate of value-added tax to reduce from 16% to 14%. This is expected to lower the cost of essential goods, hence lowering the cost of living. This means that the cost of basic needs and goods will reduce.
III. The Central Bank of Kenya shall provide flexibility to banks with regard to requirements for loan classification and provisioning for loans that were performing as on March 2,2020 and whose repayment period was extended or were restructured due to the pandemic.
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