Kenya unveils tax relief measures in response to COVID-19

Kenya has recently unveiled tax relief measures in response to the COVID-19 pandemic, aimed at cushioning the most vulnerable individuals and businesses in the country. The Tax Laws Amendment Bill, 2020, was signed into law by President Uhuru Kenyatta, opening a window for newly introduced fiscal measures to protect low-income earners, small businesses, and retirees from the negative effects of the global health crisis. In a recent interview on CNBC Africa, Economic Analyst Reginald Kadzutu shed light on the impact of these measures on the economy. Kadzutu pointed out that while the measures are designed to provide relief, some may have a more significant impact post-COVID-19. For example, the reduction in income tax rates aims to increase disposable income for individuals and corporations, encouraging investment. However, Kadzutu noted that in the current situation where many organizations have cut salaries or laid off employees, people are more focused on saving rather than consumption. The measures may be more effective once the economy starts recovering, stimulating aggregate demand. Kadzutu highlighted a mix of both positive and concerning aspects of the tax relief measures. While the income tax rate for foreign companies has been reduced to 25 percent, the with-holding tax on dividends has increased to 15-20 percent, offsetting the reduction in the corporate tax rate. Additionally, incentives like electricity rebates for the manufacturing sector have been removed, potentially leading to an increase in food prices and manufactured goods. Furthermore, the reclassification of goods from zero-rated to exempt or 14 percent VAT may result in price hikes for essential items such as medicine and vaccines. The analyst emphasized that while individuals may have more disposable income, it might not translate into increased purchasing power if essential goods become more expensive. The tax measures also include the incorporation of excess duty as part of the cost for calculating VAT on fuel, potentially leading to higher fuel prices and impacting various sectors dependent on transportation and electricity. Moreover, Kadzutu discussed the lack of incentives to prevent layoffs and employee releases by corporations during the crisis. While the reduction in corporate tax is welcomed, the absence of support for struggling companies to maintain their workforce may result in job losses. Notably, the introduction of VAT on brokerage services and insurance could affect liquidity at the Nairobi Securities Exchange, potentially reducing market activity due to higher transaction costs. Overall, the reaction to the new tax bill has been mixed. While some individuals and locally based companies appreciate the additional income and tax reductions, foreign companies and SMEs have expressed concerns about certain provisions. There is a recognition that the tax measures offer some relief but may not be sufficient to address the ongoing economic challenges, particularly in the employment sector and overall economic downturn.