Times Tower, the headquarters of the Kenya Revenue Authority. FILE PHOTO
Happy New Year. The Kenya Revenue Authority has lined up multiple tax measures that are meant to take effect this year.
It
is a mixed bag of tax goodies, offering reprieve for low-income earners
while hitting betting firms and landlords with new taxes.
Individuals
who have stashed cash aboard have been given an amnesty to bring back
their assets and won’t be questioned about the source of the wealth.
Those
defaulting on power and water bills will now be listed with credit
bureaus, deeming them risky to lend to in the current interest rate cap
regime.
President Uhuru Kenyatta hopes to net more cash
to fund the government’s bulging waistline mostly in servicing loans,
which hit Sh3.7 trillion in September 2016.
Mr Kenyatta
assented to the Finance Bill 2016 on 13th September 2016, making into
law a raft of measures touching on income tax, value added tax, excise
duty, banking, and other miscellaneous tax-related statutes.
10 per cent withholding tax on rental income
Starting this month, the taxman will appoint agents to collect withholding tax on rent paid to landlords.
That
means tenants and realtors will only pay landlords 90 per cent of the
rent and submit the remaining 10 per cent directly to KRA as
withholding. This must be paid by the 20th day every month.
“The
purpose of this was to broaden the tax base by trying to net in as many
landlords receiving rental income who may not be declaring the income
in their returns,” said Parag Shah, a partner at Grant Thornton.
Failure to do so will attract a penalty of 10 per cent and interest of 1 per cent per month for every month they fail to do so.
Gambling taxes
Treasury secretary Henry Rotich has now shifted the burden of taxes in the betting industry to bookmakers rather than gamblers.
The previous withholding taxes applicable on betting and gaming winnings at the rate of 20 per cent have now been repealed
Firms
such as SportPesa, mCHEZA, Betway, Pambazuka, and Kenya Charity
Sweepstake now face hefty taxes that have to be paid by the 20th of each
month.
“It is also an attempt by the KRA to cash in on
the booming gaming industry in Kenya,” said Mr Robert Waruiru, an
associate director in charge of tax and regulatory services at KPMG The
new law provides for betting tax of 7.5 per cent on the gaming revenue
after paying out winnings, while lotteries will pay five per cent of
their turnover by the same deadline.
Gaming companies will also hand in 12 per cent of their revenue after paying out winnings.
Companies
which run raffles involving a premium rate SMS will now pay a prize
competition tax at 15 per cent of the total gross turnover.
Sacco, power and water bill defaulters
The
noose is tightening on bad debtors, with settling of sacco loans now
also added to factors to be used beginning New Year to determine a
borrower’s creditworthiness.
Failure to pay
electricity, water, and telephone bills will now land Kenyans on the
list of defaulters at the credit reference bureau and deny them access
to loans, or designate them as risky borrowers.
“This
will increase the pool of information available to lenders for use in
determining the credit-worthiness of potential borrowers,” said analysts
at KPMG.
Loan defaulters in Kenya cannot hide anywhere
in the EAC, as the law also provides for cross-border sharing of credit
information between regulators, supervisory authorities and credit
reference bureaus.
Cargo owners
Effective January 1, 2017, all commercial imports to Kenya must be insured locally, meaning cargo owners must take marine cover.
Importers
now face an average marine insurance premium of 0.5 per cent of
shipment value, according to data from the Association of Kenya
Insurers, a lobby of underwriting firms.
The cost of
obtaining insurance locally may increase importers’ logistics costs
resulting in higher prices for goods as the costs will be passed to
consumers.
“It needs to be clear whether there will be a
cost advantage for importers in arranging and paying locally for
insurance,” said Mr Gilbert Langat, chief executive at Shippers Council
of Eastern Africa, a lobby of cargo owners.
“Most
importers have existing contracts as well as goods in the high seas that
will be arriving after the implementation date. KRA needs to be very
clear on how such cases will be handled to avoid disrupting businesses,”
he said.
Increase in personal income tax bands and personal relief for low-income earners
The
individual tax bands have now increased by 10 per cent. Further, the
personal tax relief will also rise from Sh13,944 per annum to Sh15,360
per annum.
“This will slightly increase the disposable income especially for low income earners,” said KPMG in a research note.
For
instance, an employee whose current taxable income is Sh40,000 and is
only eligible to personal relief, currently takes home Sh34,068.
Effective
January 1, 2017, the employee will take home Sh34,537, a welcome even
though paltry increase given the high cost of living. Mr Rotich made
January 1, 2017 the date for an amnesty extended to fat cats who have
hidden their wealth abroad on condition they return such assets back to
Kenya.
As hard-working Kenyans break their backs to pay
taxes, corrupt wealthy individuals will enjoy a reprieve if they file
returns on income from foreign sources.
Mr Rotich
announced that “the government shall not follow up on the sources of
such income and assets declared,” provided they surrender the requisite
30 per cent income tax to KRA.
The Treasury chief is
seeking to recover the more than £1 billion (Sh129 billion) looted from
Kenyan taxpayers during President Moi’s reign and stashed in offshore
bank accounts and prime real estate overseas, according to a forensic
study by Kroll Associates.
The law also targets other monies plundered and stashed abroad.
Hefty penalties for rogue banks
The
penalties for commercial banks flouting the Banking Act or the Central
Bank of Kenya prudential guidelines have been enhanced fivefold to serve
as a deterrence.
This comes in the wake of findings
that 18 out of Kenya’s 40 banks handled the Sh1.6 billion National Youth
Service scam dirty cash. The lenders were fined Sh1 million each,
considered a slap on the wrist.
The fine for banks that violate the law or CBK rules has been quadrupled to Sh20 million from the current Sh5 million.
Bank executives who flout the law will be hit with a Sh1 million fine up five times from the present Sh200,000.
CBK now has fresh powers to charge additional penalties of up to Sh100,000 per day, up from Sh20,000 daily, for each day the violation continues.
CBK now has fresh powers to charge additional penalties of up to Sh100,000 per day, up from Sh20,000 daily, for each day the violation continues.
Analysts
at KPMG reckon that such hefty penalties “are designed to act as a
deterrence against violation of regulations, which is among the reasons
some banks have run into difficulties and even liquidation.”
KRA to pay interest on overdue refunds
Any
overpaid tax that the KRA does not settle within two years from the
date of application for a refund, shall attract interest at the rate of
one per cent per month.
The time within which a
taxpayer can claim a refund of overpaid income tax from now is increased
to five years from the 12 months previously.
There is also a provision, which limits the deadlines for filing VAT refunds to 12 months from the date the refunds arose.
KRA
currently owes investors, mostly manufacturers, more than Sh5.4 billion
in VAT refund, a backlog that had peaked at Sh20 billion in 2013.
“The
interest payments will cushion businesses against the devaluation of
their VAT assets as a result of delayed payments even though the
government will still enjoy interest free credit,” said KPMG
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