President Uhuru Kenyatta issued a directive to reduced workers’ income tax as well as value-added tax (VAT), and lowered the sales levy for small and mid-sized businesses as part of a raft of measures to help cushion the economy from the impact of the coronavirus outbreak.
The President announced a 100 percent tax relief for Kenyans earning a salary of up to Sh24,000 in a move that will offer workers in that band an additional disposable income of between Sh1,000 and Sh1,400.
He also lowed the maximum income tax rate to 25 from 30 percent, which applies to workers earning more than Sh47,000.
The cut in the VAT rate to 14 percent from 16 is also expected to lower the cost of a variety of goods like electricity, sanitizers, detergents, newspapers, processed foods, phones, books, electronics, computer hardware, and software.
Yesterday’s tax changes are geared to lowering the cost of basic items while providing workers with additional income to boost consumption, which will in turn increase sales for traders, retailers and other outlets.
PLIGHT OF SMALL MEDIUM ENTERPRISES
Traders operating small and mid-sized businesses will be paying one percent tax on their sales to the Kenya Revenue Authority (KRA), down from the three percent rate introduced in January.
This move will ease the pain for enterprises struggling with low revenues in the wake of the increasing slowdown of movement as part of the strategy to slow down the spread of the Coronavirus.
Local companies buffeted by lowers sales and earnings will also pay a lower tax of 25 percent on their profits from the current 30, translating to a free cash pile for the corporates.
Besides the stimulus package, the government has responded to the coronavirus by imposing tough travel restrictions, limiting mass gathering and requiring self-isolation for the infected and those at risk to curb the spread of coronavirus.
TRADE RESTRICTIONS
Restrictions on foreigners coming into Kenya have also led a hit on the country’s tourism industry, with some hotels at the Coast reporting occupancy rates of well below 10 percent compared to the normal 75 percent.
Travel restrictions in Europe have also slashed daily flower and other horticultural orders to half for a continent that accounts for 70 percent of Kenya’s cut-flower exports.
The government also plans to pay pending bills to suppliers in three weeks and speed up company tax refunds to boost businesses’ cash flow and put money in circulation.
Treasury plans to release Sh13 billion to suppliers for unpaid bills within three weeks and expedite the payment of close to Sh10 billion in VAT refunds to businesses in the next three weeks.
