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Taxes Updates (01 January 2021)

FINANCE ACT, 2020 No. 8  & TLAAs

Taxes in Section 12 ITA(Not part of Finance act)

  • Instalment tax(12)
  • Advance tax(12A)
  • Fringe benefit tax(12B)
  • Turnover and Presumptive tax(12C), TLAA2020
  • Minimum tax(12D)
  • Digital service tax. (12E)

Residential rental Income Tax 

  • Set out in s.6A ITA 
  • This was introduced by Finance Act of 2015
  • Became operational: 01-01-2016
  • Source: Income accrued in or derived from Kenya.
  • Band: 
    • (144K-10M), Old
    • Wef-01/01/2021 (288K-15M)
  • Rate: 10%  on the Gross rental receipts. (3rd Sc, Paragraph 10 - ITA),
  • Due Date: 20th of following month.
  • Exempted: From minimum tax.
  • There is a provision not to be subjected this and other taxes will apply.
  • If no rent: File nil return (KRA)
Compare above and below
Rental Income:
Landlords with rental income below tax 288K per year shall be required to file annual income tax returns and declare this rental income together with income from other sources.
  • Expenses allowable: Structural alterations to the premises(Not extension/replacement). (s.15f)
Minimum tax
  • Set out in s.12D ITA
  • This was introduced by Finance Act of 2020.
  • Income accrued in or derived from Kenya.
  • Rate: 1%  on the Gross turnover. (3rd Sch, Paragraph 11 - ITA)
  • Due Date: 20th of every quarter.
  • Exempted
    • Employment income(s.5ITA)
    • Residential Rental Income(s.6A ITA)
    • Turnover Tax (s.12C)
    • Gains from property (8th Sch ITA)
    • Buss. whose Retail price is controlled by the Government.
    • Insurance business.
    • Instalment tax is less than min. tax.
  • Filed and paid: Quarterly-4,6,9,12.

Digital service tax

  • Set out in s.12D ITA
  • This was introduced in Finance Act of 2020.
  • Income accrued in or derived from Kenya through a digital market place.
  • Rate: 1.5%  on the Gross transaction value. (3rd Sch, Paragraph 12 - ITA)
  • Due Date: At the time of transfer of payment. 
  • Exempted: No
Turnover Tax
  • Band:  Turnover (<5M),(1M-50M), wef 25/04/2020
  • Set out in s.12C ITA
  • Exceptions:
    • Rental income
    • Management/Prof. fees
    • Income subject to final WHT
  • Due: 20th day after tax period/month
  • Rate: 3%  1% of  Gross receipts. (3rd Sch, Paragraph 9- ITA)
Deductions Dis-allowed (s.15 ITA) wef:01/01/2021
  • An entrance fee or annual subscription paid during that year of income to a trade association which has made an election under section 21(2) ITA;
    • "trade association" means a body of persons which is an association of persons separately engaged in any business with the main object of safeguarding or promoting the business interests of those persons;(h)
  • Capital expenditure on legal costs and other incidental expenses: 
    • relating to the authorization and issue of shares, debentures or similar securities offered for purchase by the general public. (s)
    • for the purposes of listing on any securities exchange operating in Kenya, without raising additional capital. (ss)
  • Capital expenditure on rating for the purposes of listing on any securities exchange operating in Kenya. (u)
  • Club subscription paid by an employer on behalf of an employee. (v)
Registered home Ownership savings Plan 
  • This is set out in s.22C 
  • The whole of HOSP has been repealed by FA2020 wef 01/01/2021
  • Interest received on HOSP deposits exempt(to Max of 3M) before 2021
  • Deduction  to maximum of 96K pa was allowed too. before 2021
  • Income of a registered home ownership savings plan is NOW taxable.(NB: By repealing s.22C it means HOSP does NOT exist) wef 01/01/2021

ED ACT
Adjustment for inflation - Requires NA approval
  • Commissioner may, with the approval of the CS, by notice in the Gazette, adjust the specific rate of excise duty once every year to take into account inflation in accordance with the formula specified in Part 1 of the First Schedule.
  • After publication it must be taken to NA within 7days and NA will approve or reject it within 28 sitting days.
TPA
1-Voluntary Tax Disclosure Programme.
This is newly introduced in TPA s.37D
  • Definition: Is where a person discloses the person’s tax liabilities to the Commissioner for the purpose of being granted relief of penalties and interest on the tax disclosed.
  • Duration: Will be for 3 years wef 01/01/2021
  • Period Covered: 5 years prior to 1st July 2020.
  • Approach: Apply to commissioner in prescribed form.
  • Mandatory: Principal must be paid in full
  • Remission of Interest & Penalty:100% ,50%,25% if disclosure is paid in 1st,2nd,3rd year resp.
  • Immunity: This person shall not be prosecuted with respect to the tax liability disclosed.
  • Requirements: This is voluntary& disclose ALL material facts
  • Relief must not lead to a REFUND.
  • How to pay: Commissioner will set terms of payment of which it must be paid within 1 year.
  • If terms are not met: Person will be liable to pay full Interest & penalty.
  • Can taxpayer appeal: NO
  • Discovery of material facts before expiry of term: The commissioner may
    • Withdraw any relief granted
    • assess and collect any balance of the tax liability;
    • commence prosecution under S.80 (Administrative penalties and offences)
      • For any tax law (Same) offense its either payment or prosecution.
      • Demand penalty or prosecute the offence
      • If  Commissioner commences a prosecution, any penalty paid will be refunded.
  • Rights of Taxpayer: The above decision is appealable by the taxpayer.
  • Exemption from VTDP: 
    • Persons under audit, investigation, ongoing litigation concerning tax.
    • Persons who have received pending audit or investigation.
2-Appointment of digital service tax agent.
This is newly introduced in TPA s.42B. 
(1) The Commissioner may appoint an agent for the purpose of collection and remittance of digital service tax to the Commissioner.
(2) An appointment under subsection (1) may be revoked at any time by the Commissioner.

Tax Laws Amendment (No. 2) Act,

Effective Date: 01/01/2021
Assented: 23/12/2020

1.The amendments touching minimum tax has been captured already. (S.12D)

2.New Tax bands introduced. [3rd Sch. Head B, 1 and 1A(for Wife) ]

Band
Annual(Kes)
Monthly(Kes)
Rates
On the First288,00024,00010%
On the Next100,0008,33325%
Income Above388,00032,33330%

Personal Relief remains at Kshs. 28,800 per annum (Kshs. 2,400 per month).

3. Corp.Tax (3rd Sch. Head B, 1 (a)for resident co.)
Corporation tax rates have been increased from 25% to 30%
  • This affects income earned from the 1st January, 2021. 

4: Withholding tax rates on withdrawal from pension .3rd Sch. Head B, 5(d))
(i)
Withdrawal in excess of the tax free amounts from a registered pension/provident fund, NSSF
  • after the expiry of 15 years from the date of joining the fund, or 
  • on the attainments of the age of fifty years, or 
  • upon earlier retirement on the grounds of ill health or infirmity of body and mind
Old Rates
  • On the first Shs. 400,000 - 10% 
  • On the next Shs. 400,000 - 15% 
  • On the next Shs. 400,000 - 20% 
  • On any amount above Shs. 1,200,000 of the amount in excess of the tax free amount - 25%  
New rates
  • On the first KSh. 400,000 10%
  • On the next KSh. 400,000 15%
  • On the next KSh. 400,000 20%
  • On the next KSh. 400,000 25%
  • On all income above KSh. 1,600,000 of the amounts in excess of the tax-free amount. - 30%
(ii)
Withdrawal from pension .3rd Sch. Head B, 5(d))
Before the expiry of fifteen years from the date of joining the fund,  in excess of the tax free amounts.
  • New individual PAYE rates apply down from previous subsidized rates.
(iii)
Refunds / surplus funds withdrawn from Pension by employer is now taxed at 30% down from 25%.


VAT
Input tax claim
Registered manufacturer may make a deduction for input tax with respect to taxable supplies made to an official aid funded project with approval of the CS.  

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