Yatani: New income tax cuts to last beyond coronavirus

Treasury CS Ukur Yatani. FILE PHOTO | NMG 

By PATRICK ALUSHULA
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Summary

• Mr Yatani told the Business Daily that the tax cuts, which he was to present to Parliament Monday, are meant to jump-start growth.
• The incentives were seen as a series of measures to cushion the economy from the impact of the coronavirus outbreak.
• This led analysts to believe that the reliefs would be short-term and would be lifted in the next financial year starting July.

Income tax, value-added tax and sales levy cuts announced by President Uhuru Kenyatta last week are long-term, Treasury Secretary Ukur Yatani revealed Monday.

The tax incentives are not tied to the end of the coronavirus pandemic, meaning that Kenyan workers and companies will continue enjoying them even after the spread of the virus has been contained.

Mr Yatani told the Business Daily that the tax cuts, which he was to present to Parliament Monday, are meant to jump-start growth.

The incentives were seen as a series of measures to cushion the economy from the impact of the coronavirus outbreak.

This led analysts to believe that the reliefs would be short-term and would be lifted in the next financial year starting July.

“Those measures are permanent and not for three months,” Mr Yatani said yesterday in a phone interview.

He promised to forward a Bill spelling out the tax changes to Parliament for approval before close of business Monday. Treasury is targeting the tax cuts to take effect in April.

“(They) will be forwarded (to the National Assembly) before the end of the day,” said Mr Yatani.

Senators are expected to convene from today while MPs are expected back to the House before April 7 to debate the proposals before they can be effected after being signed into law.

Mr Yatani will be seeking approval to exclude workers earning less than Sh24,000 from paying taxes. He is also seeking to offer them additional pay of between Sh1, 000 and Sh1,400 arising from the proposed relief.

MPs will also debate the proposal lowering the maximum income tax rate to 25 per cent from 30 per cent, which applies to workers earning more than Sh47,000. This will create an additional income of Sh4,241 monthly for those earnings Sh50, 00; Sh7,229 for those earning Sh100,000 and Sh9, 717 for those with a salary of up to Sh150,000. Employees on Sh500,000 pay will get Sh27,229 as relief.

Top earners on a gross monthly salary of Sh1 million will see their take home increase by Sh52,229, translating to an income increment of about seven per cent.

Parliament nod

Lawmakers nod will be required to lower the three per cent tax levied on small and mid-sized traders sales to one per cent, a move that looks set to ease the pain for enterprises.

Local companies will also pay a lower tax of 25 per cent on their profits from the current 30 if Parliament accepts Treasury’s proposals.

Mr Yatani last Thursday took advantage of a clause in the tax laws that allows him to vary the value added tax (VAT) by margins not exceeding 25 per cent.

Mr Kenyatta proposed a cut on VAT rate from 16 to 14 per cent, seeking to lower the cost of a variety of basic items used in households.

Mr Yatani said the low VAT rates will apply from tomorrow — April 1 — setting the stage for a review of retail prices of the numerous basic items, including food, electronics and books.

Yesterday, the Kenya Association of Manufacturers said factories will from Wednesday adjust prices in line with the two percentage drop in VAT.

“It (the drop in VAT) will increase the disposable income of the consumer to increase spending,” KAM chairman Sachen Gudka said on phone.

“Manufacturers should ensure that price reductions come through from April 1 such that consumers can benefit.”

The tax changes are aimed at lowering the cost of basic items while providing workers with additional income to boost consumption. This will also increase sales for traders and retailers.

Kenya has so far confirmed 50 cases of the Covid-19 and its critical tourism and farm export businesses have been feeling the pinch from the economic impact of the coronavirus pandemic.

Ministry of Health Director General Patrick Amoth Monday said preliminary modelling data showed that coronavirus cases by mid-April could hit 5,000, and rise to 10,000 by end of April in the absence of drastic intervention measures.

The State has imposed restrictions, including cancellation all flights save for cargo planes, ordered shutdown of bars and nightclubs, restaurants to operate as takeaway units, and put a freeze to church services and weddings and capped funeral gatherings to 15 people.

The impact of social distancing and restriction of businesses like schools, bars and restaurants looks set to impact on consumer spending, setting stage for job cuts and unpaid leave to workers struggling with reduced cash flow.

CBK has cut its 2020 economic growth forecast from an estimate of 6.2 per cent to 3.4 per cent — the lowest in 12 years.