Most employers had already closed their April payrolls using the old PAYE rates by the time the new tax relief measures came into effect. What is the effective date of the new rates and what is the way forward for such employers?
PAYE is a monthly tax which is accounted for on a calendar month basis. Due date for April taxes is 9th May. Since, the new rates of PAYE tax came into force before end of the calendar month, the applicable rates for April Payroll is the new rate and not the old.
In respect of employers who had closed their payroll and had applied old PAYE rates, they can either:
revise their payrolls to take into account the new rates and refund taxes over deducted to staff as they have not remitted deducted PAYE to KRA or
recover the over deducted PAYE in the month of May payroll (PAYE payable to KRA) to refund their staff.
What are the new PAYE tax brackets?
The new rates are:
PAYE Tax Bands Rate of Tax
On the First Ksh 24,000 (288,000 p.a) 10%
On the next Ksh 16,667 (200,000 p.a) 15%
On the next Ksh 16,666 (200,000 p.a) 20%
On all income amounts in excess of Ksh 57,334 (688,000 p.a) 25%
Monthly personal Relief Ksh 2,400 (28,800 annually)
On pensions the new tax rates are:
Pension Tax Bands Annual Tax Rates
Any amount in excess of tax free amounts:
On first Ksh 400,000 10%
On next Ksh 400,000 15%
On next Ksh 400,000 20%
On any amount in excess of Ksh 1,200,000 25%
Will the implementation of the new PAYE tax rates affect my 2020 annual returns next year?
Yes, it would affect. There will be two new rates applicable. First, the old individual rates of taxes applicable for income earned from January to 31st March 2020 and secondly, the new rates which apply on incomes earned from April to December, 2020. Similarly, reliefs follow the same understanding.
VAT reduction was effective 1st April 2020. How is this possible yet Parliament passed the amendments on 22nd April 2020?
The cabinet Secretary (CS) for National Treasury is by law given the powers to vary the VAT rate either upwards or downwards by rate not exceeding 25%. The variation becomes effective immediately on a date specified in the Kenya Gazzette. In this case, effective date was published as 1st April, 2020. Further, the CS upon publication, is required to lay the notice before the National Assembly (NA), within 21 days for consideration. The CS did lay the notice on the 14th of April, 2020 before NA as required, which was debated and approved.
The change in VAT rate did not require presidential assent as other tax laws amendments.
Will we revert to the old PAYE tax rates immediately the pandemic is over?
No, the new individual tax rates and any other tax amendments effected would last post COVID-19 pandemic.
Which exemptions have been removed from the Income Tax Act?
The exemptions deleted from the Income Tax Act were as follows under the 1st Schedule to the said Act:
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Paragraph 4 |
The income of all the institutions listed in paragraph 4 which the Tea Board of Kenya, Pyrethrum Board of Kenya, Sisal Board of Kenya, Kenya Dairy Board, among others. |
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Paragraph 7 |
Profits or gains of the Agricultural Society of Kenya |
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Paragraph 9 |
Interest on any tax reserve certificates which may be issued by authority of the Government |
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Paragraph 18 |
Any payment in respect of disturbance made to was employees in the public service of any of those governments or of the Community |
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Paragraph 25 |
The emoluments of any officer of the Desert Locust Survey who is not resident in Kenya. |
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Paragraph 28 |
Any education grant paid by the Government of the United Kingdom under any agreement between that Government and the Government of Kenya. |
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Paragraph 29 |
The income received by way of remuneration under any contract which was entered into consequent upon financial assistance being received from the International Co-operation Administration |
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Paragraph 30 |
The income received by virtue of their employment by citizens of the United States of America who are employed by the Department of Agriculture of the United States of America on research work in co-operation with Government. |
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Paragraph 31 |
Gains or profits resultant from any reward paid by the United Kingdom Atomic Energy Authority for the discovery of uranium ore in Kenya |
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Paragraph 32 |
All income of any non-resident person not having a permanent establishment in Kenya and which consists of interest or management and professional fees paid by the Tana River Development Company Limited or its successors in title |
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Paragraph 33 |
Such part of the income of the East African Power and Lighting Company |
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Paragraph 34 |
The income of the General Superintendence Company Limited |
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Paragraph 36 |
Exemption of CGT on gains made by an individual from : - shares in the stock or funds of the Government, the High Commission or the Authority established under the Organization or the Community; shares of a local authority; and land which has been adjudicated under the Land Consolidation Act or the Land Adjudication Act when the title to that land has been registered under the Registered Land Act and transferred for the first time. |
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Paragraph 40 |
Interest earned on contributions paid into the Deposit Protection Fund |
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Paragraph 41 |
Interest paid on loans granted by the Local Government Loans Authority |
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Paragraph 46 |
Dividends received by a registered venture capital company, special economic zone enterprises, developers and operators licensed under the Special Economic zones Act |
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Paragraph 47 |
Gains arising from trade in shares of a venture company earned by a registered venture capital company |
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Paragraph 52 |
Interest income generated from cash flows passed to the investor in the form of asset-backed securities. |
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Paragraph 55 |
Dividends paid by Special Economic Zone Enterprise, developers or operators to any non-resident person |
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Paragraph 56 |
Compensating tax accruing to a power producer under a power purchase agreement. |
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The whole of Part II (securities, the interest on which is exempt from tax) of the First Schedule. |
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What is the implication of increasing the monthly tax relief from Ksh 1,408 to Ksh. 2,400 on employment income?
Tax relief as the name suggests is a reduction or refund of tax from what is supposed to be payable as computed from the income earned. This means that the higher the tax relief, the lesser the tax payable. With the current increase of relief from Ksh 1,408 to Ksh 2,400, it means that a taxpayer has been given back by the government tax of Ksh 992 from what he/she ought to have paid. Relief therefore, lightens the tax burden on the taxpayer. It is a form of tax saving.
What is qualifying interest and how does the recent amendment to the income tax affect qualifying interest?
Qualifying interest is interest on income receivable by resident individuals from banks, buildings, societies or Central Bank of Kenya which are subjected to withholding tax (WHT) at source which is a final tax. This means prior to the new amendments, interest arising from other sources different from the above mentioned were not categorized as qualifying and hence, WHT thereon was not final.
With the new amendments, interest from whatever source receivable by resident individuals are now qualifying. Consequently, WHT charged is final.
The amendments are aimed at encouraging individuals to save in other institutions other than banks, building societies or CBK.
When turnover tax was reintroduced early this year, qualifying businesses had to have an annual turnover not exceeding five million shillings. Under the new amendment to Turnover Tax provisions, the new threshold is annual turnover of between one million
Turnover tax (TOT) threshold currently applies to turnover of between Ksh one million and Ksh fifty million but not Ksh 5 million and 50 million as alluded.
There is no contradiction since the TOT & VAT are two different taxes with different threshold requirements.
A TOT taxpayer with a turnover exceeding five million shillings is required to register to charge and account for VAT. This is because, with the new income tax changes in law did not affect VAT registration threshold. Hence, there is no contradiction in the two laws.
Under the new turnover tax provisions, the incorporated entities whose annual turnover falls within the new threshold now qualify to pay turnover tax. How will such entities account for the corporate tax?
TOT is a tax payable at moment by both resident incorporated persons as well as individuals. TOT is income tax. Hence, once a person registers to fall under this tax head, he shall not be required again to pay individual income tax or corporate tax. TOT shall therefore, be the only income tax he shall be required to pay.
Will business qualifying for Turnover tax still qualify for presumptive tax?
Presumptive tax law has been repealed. Hence, it is no longer payable by any person within the TOT threshold. In other words, it is no longer in our statutes as a tax payable.
When was the Value Added Tax reduction from 16 per cent to 14 per cent effective?
The new VAT rate of 14% became effective on the 1st of April, 2020.
My electronic tax register (ETR) is yet to be configured to reflect the new VAT rate. How do I go about this reconfiguration?
You are required to visit your ETR supplier to reconfigure immediately. It is illegal to charge VAT at 16% on your supplies from 1st of April, 2020
