MPs to debate return of pre-Covid taxes

 Parliament will today start debating National Treasury tax intentions to return the country to the pre-Covid taxes.

The implication is that majority of Kenyans will take home reduced earnings, effective January 1, if the bill passes.

In a Special  Sitting, parliamentarians will deliberate on the Tax Laws (Amendment) (No. 2) Bill, 2020 which proposes to revert taxes to what they were before reliefs were introduced in March to cushion against the Covid-19 pandemic.

“The principal object of the bill is to amend the Third Schedule to the Income Tax Act, Cap. 470 to reverse income taxes, specifically Pay As You Earn and Corporation Tax to the rates that existed before the enactment of the Tax Laws (Amendment) Bill, 2020 (pre-Covid.),” reads the National Assembly brief on today’s Special Sitting.

It is expected that the bill, will be fast-tracked so that the amendments are passed in time for relief reversal to take effect starting January 1, as earlier announced by the National Planning Cabinet Secretary, Ukur Yatani.

The amendments will see Value Added Tax revert back to 16 from the current 14 per cent while corporate tax will revert to 30 per cent from 25 per cent.

Maximum Pay-As-You-Earn for the top band will revert to 30 per cent from the 25 per cent  introduced in the wake of Covid-19.

Lifting of the reliefs will see those earning Sh50,000 per month lose Sh4,241 they have been enjoying in reliefs while those earning Sh100,000 will lose Sh7,229.

Over 60 per cent of the country’s 2.8 million workers earn less than Sh50,000 per month. 

Those earning more than Sh1 million per month will lose over Sh50,000 once the country reverts to pre-Covid terms.

Kenyans earning up to Sh24,000 will continue enjoying the same benefits as they do now since the bill proposes to maintain a 100 per cent income tax relief to cushion the most vulnerable individuals from Covid-19 shocks.

Additionally, the government also plans to move the tax band that pays the maximum 30 per cent to start from those earning Sh74,000 per month up from Sh47,060 previously.

The bill also seeks to introduce minimum tax which will see all businesses earning above Sh50 million annual gross income to remit one per cent of their income to Kenya Revenue Authority as minimum tax.

Introduction of minimum tax, however, has been met with resistance from the business community who said it needs re-thinking.

“The proposed tax will negatively affect business operations and significantly hamper cashflow, pushing struggling entities to premature closure, leading to loss of jobs and taking the economy into a downward spiral,” said the Institute of Certified Public Accountants of Kenya chairperson, Rose Mwaura.

No longer sustainable

Analysts have also questioned the wisdom in introducing the tax at a time when businesses are reeling from effects of Covid-19 pandemic.

“We caution against the realism of taxing corporates which have genuinely incurred losses more so in the current uncertain environment,” said Churchill Ogutu, the head of research at Genghis Capital.

According to Treasury, the tax reliefs are no longer sustainable as the country is struggling to plug persistent revenue shortfalls. 

In 2019/20 financial year, the National Treasury missed its revenue target by Sh40.2 billion netting Sh1.575 trillion against a target of Sh1.615 trillion, a 2.5 per cent deficit. 

Ordinary revenue for the first quarter of financial year 2020/21 reduced by close to Sh30 billion to stand at Sh342.6 billion down from Sh372.3 billion reported same time last financial year.