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Taxes changes taking effect April 2020

Effective  25April  or 30June2020

FA

ITA 

Exempted incomes now taxable

Bonuses, overtime and retirement benefits: 

This is for employees whose salary does not exceed the lowest tax band provided under Head B of the Third Schedule. (1st  Sch, Paragraph 53- ITA) (Finance Act 2020- wef-30June2020)

Exempted incomes
Monthly pension granted to a person who is 65years of age or more (1st  Sch, Paragraph 52- ITA). (Finance Act 2020- wef-30June2020)

Income not chargeable-Transfer of property
The gain accruing to a company on any transfer of machinery classified in paragraph 1 (b) of the Second Schedule is not chargeable to tax under section 3(2)(f).
The initial paragraph was deleted to give way for new amendment of replaced wear and tear schedules with investment deduction.  (8th  Sch, Par 3, subPar 2 - ITA). (Finance Act 2020- wef-30June2020)

VAT
NO INPUT CLAIM IF NOT DECLARED BY SELLER
If the registered supplier has not declared the sales invoice in a return, the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation. (s.17(2) VATA)
(Finance Act 2020- wef-30June2020)

Exemption of goods for SOF projects:
The exemption of goods imported or purchased locally for direct and exclusive use in the implementation of projects under a special operating framework arrangement with the Government, shall continue for existing projects for the remaining period of the agreement. (s.68(2A) VAT).
(Finance Act 2020- wef-30June2020)


Exempted goods now taxable.(1st Sch s.A, Part I VATA) (Finance Act 2020- wef-30June2020)
  • Alluminium pilfer proof caps with EPE liner and its corresponding description appearing in paragraph 39 (3).
  • Specialized equipment for the development and generation of solar and wind energy, including deep cycle batteries which use or store solar power.
  • Goods of tariff No. 4011.30.00. ie. New pneumatic tyres, of rubber, of a kind used on aircraft.
  • Taxable goods locally purchased or imported by manufacturers or importers of clean cooking stoves for direct and exclusive use in the assembly, manufacture or repair of clean cook stoves’.
  • Stoves, ranges, grates, cookers (including those with subsidiary boilers for central heating) barbeques, braziers, gas-rings, plate warmers and similar non-electric domestic appliances, and parts thereof, of iron or steel of tariff numbers listed below:(Refer- Heading no.73.21 EAC-CET 2017 ACT)
      •  Cooking appliances and plate warmers :
    • 7321.11.00, i.e  For gas fuel or for both gas and other fuels
    • 7321.12.00, i.e  For liquid fuel
    • 7321.19.00, i.e  Other, including appliances for solid fuel
    • 7321.81.00, i.e  For gas fuel or for both gas and other fuels
    • 7321.82.00, i.e  For liquid fuel
    • 7321.83.00  i.e  Other, including appliances for solid fuel
    • 7321.90.00. i.e  Parts
  • One personal motor vehicle, excluding buses and minibuses of seating capacity of more than eight seats, imported by a public officer returning from a posting in a Kenyan mission abroad and another motor vehicle by his spouse and which is not exempted from Value Added Tax under the First Schedule: 
      • Provided that the exemption under this item shall not apply—
    • a) unless the officer is returning to Kenya from a posting in a Kenyan mission abroad upon recall;
    • b) unless, in the case of an officer’s spouse, the spouse accompanied the officer in the foreign mission and is returning with the officer;
    • c) if the officer or the spouse has either enjoyed a similar privilege within the previous four years from the date of importation or has imported a motor vehicle free of duty under item 6 of Part A of this Schedule;
    • d) unless the vehicle is imported within ninety days of the date of arrival of the officer or spouse or such longer period, not exceeding 360 days from such arrival as the Commissioner may allow; and
    • e) to a State officer.
Exempted Goods and Services(Finance Act 2020- wef-30June2020)
  • Maize (corn) seeds of tariff no. 1005.10.00. i.e. Maize (corn).Seed only. (s.A, Part I)
  • Ambulance services.(s.A, Part II)

Zero Rated Goods/Services now taxable(Finance Act 2020- wef-30June2020)
Inputs of raw materials for electric accumulators and separators including lead battery separator rolls whether or not rectangular or square supplied to manufacturers of automotive and solar batteries in Kenya.

Exempt Flour now Zero Rated for 6 Months (Finance Act 2020- wef-30June2020)
The supply of maize (corn) flour, cassava flour, wheat or meslin flour and maize flour containing cassava flour by more than 10% in weight: 
This shall be in operation for a period of six months from the date of assent. (ie 30/6/2020-31/12/2020)


EDA
Licence definition expanded(Finance Act 2020- wef-30June2020)
Licence:
(a) in the case of excisable services, means the certificate of registration;
(b) in the case of excisable goods, means the licence issued under section 17; or
(c) in the case of any activity under section 15 (1) (e), means the licence required thereunder.
NB:Under activities requiring a licence: the carrying out of any other activity in Kenya for which the Commissioner, by notice in the Gazette, may impose a requirement for a licence. 


Rates of Excise duty changed(Finance Act 2020- wef-30June2020)
  • Beer,   Cider,   Perry,   Mead,   Opaque   beer   and  mixtures   of fermented   beverages   with   non-alcoholic   beverages   and spirituous beverages of alcoholic strength not exceeding 6 %. (Shs100/Ltr)
  • Spirits   of   undenatured  ethyl   alcohol;  spirits   liqueurs   and other  spirituous  beverages  of  alcoholic  strength  exceeding 6 %. (Shs253/Ltr)
    • Previously the above rates were 10% 
    • This means beer has relief and spirits gets more burden.
  • Excise duty on betting of 20% has been deleted. 

MFALA
Import declaration fee - EAC DRS (Finance Act 2020- wef-30June2020)
Goods imported under the East African Community Duty Remission Scheme(EAC DRS) shall be charged import declaration fee at a rate of 1.5 % of the customs value.
Previously import declaration fee was 10K shillings at the time of entering the goods for home use.

Duty on goods for home use from an EPZ enterprise. (Finance Act 2020- wef-30June2020)
Apart from import duties payable under section 110 of the EAC Customs Management Act, 2004, 
Which states:(“rate and in the circumstances specified in the Protocol.”)
Additional duty at a rate of 2.5% of the customs value shall be payable in respect of goods entered for home use from an export processing zones enterprise.

GOODS EXEMPT FROM IMPORT DECLARATION FEE WHEN IMPORTED OR PURCHASED BEFORE CLEARANCE THROUGH CUSTOMS
  • (xxii); (xxiii);deleted
  • Equipment, machinery and motor vehicles for the official use by the Kenya Defense Forces and National Police Service.

GOODS EXEMPT FROM THE RAILWAY DEVELOPMENT LEVY WHEN IMPORTED OR PURCHASED BEFORE CLEARANCE THROUGH CUSTOMS
  • (vi);Deleted
  • Currency notes and coins imported by the Central Bank of Kenya.
  • Equipment, machinery and motor vehicles for the official use by the Kenya Defence Forces and National Police Service.

TLAA ACT 

"qualifying interest“ redefined (TaxLAA-No1-2020 wef-25April2020) 
  • "qualifying interest" means the aggregate interest, discount or original issue discount receivable by a resident individual in any year of income:
    • Provided that—
    • (a) interest earned on an account held jointly by a husband and wife shall be deemed to be qualifying interest; and
    • (b) in the case of housing bonds, the aggregate amount of interest shall not exceed 300K shillings.

Income from management or professional fees, royalties, interest and rents:(TaxLAA-No1-2020 wef-25April2020) 
Wef from 25/04/2020 includes:
  • sales promotion, marketing, advertising services, and transportation of goods (excluding air and shipping transport services.

  • Turnover tax shall be payable by any resident person whose turnover from business is more than 1M shillings but does not exceed or is not expected to exceed 50M shillings during any year of income.
  • Applicable to:
    • Rental income.
    • Management or professional or training fees.
    • any income which is subject to a final WHT under this Act.
  • Not Applicable to:
    • The income of incorporated companies; Wef25/04/2020 

Presumptive tax has been removed wef from 25/04/2020  

Deduction allowed now taxable.(TaxLAA-No1-2020 wef-25April2020) 
30% of electricity cost incurred by manufacturers in addition to the normal electricity expense. 

Tax upon the income of non-resident taxed at given rate. (TaxLAA-No1-2020 wef-25April2020) 
  • Some Aviation services now exempted from tax
    • insurance or reinsurance premium, except insurance or reinsurance premium paid in respect of aviation insurance; 
    • Sales promotion, marketing, advertising services, and transportation of goods (excluding air and shipping transport services)
Capital expenditure on construction of liquefied petroleum gas storage facilities
  • This is set out is 2nd schedule ITA which has been repealed and replaced with Investment Allowance with new rates.
  • Capital expenditure on construction of liquefied petroleum gas storage facilities shall continue to be in force until 31st December, 2021.(Par.24E)
Exempt Incomes now TAXABLE.(1st Schedule Part I)
  • Incomes of all gazzetted boards in Kenya are now taxable(Par.4) Eg.Coffee boards
  • Incomes of an agricultural society accrued in or derived from Kenya from any exhibition. (Par.7)
  • Interest on tax reserve certificates which may be issued by authority of the Government.(Par.9)
  • Payment to public servant in respect of disturbance, due to change in constitution of the government of Partner State.(Par.18)
  • The emoluments of an officer of the Desert Locust Survey who is not resident in Kenya.(Par.25)
  • Education grant paid by the UK Government received employee of the public service of Kenya or by the Community.(Par.28)
  • The income received by way of remuneration under a contract which was entered into consequent upon financial assistance being received from the International Co-operation Administration for the enterprise in respect of which the contract was entered into and which provides that income shall be exempt from tax. (par.29)
  • The income received by virtue of their employment by citizens of the USA who are employed by the Department of Agriculture of the USA on research work in co-operation with the Government. (Par.30)
  • Gains or profits resultant from a reward paid by the United Kingdom Atomic Energy Authority for the discovery of uranium ore in Kenya, except to the extent that the reward is liable to income tax in a country outside Kenya and there is, between that country and Kenya, provision for any form of double taxation relief. (par 31)
  • All income of a non-resident person not having a permanent establishment in Kenya accrued in or derived from Kenya after 17th June, 1971, and which consists of interest or management and professional fees paid by the Tana River Development Company Limited or its successors in title. (par 32)
  • Income of the East Africa Power and Lighting Company accrued in or derived from Kenya as is certified from time to time by the Minister to have been expended at the request of the Government either -
    • (a) in searching for a natural source in Kenya of geothermal energy; or
    • (b) on investigations concerning the development in Kenya of electric power generation or supply, (Par33)
  • The income of the General Superintendence Company Limited, a company incorporated in Switzerland, accrued in or derived from Kenya under an agreement dated 18th October, 1972, between that company and the CBK.(Par 34)
  • Gains from Transfer of 
    • shares in the stock or funds of the Government, the High Commission or the Authority established under the Organization or the Community; (Par 36 a) 
    • shares of a local authority; (Par 36 b) 
    • 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; (Par 36 e) 
  • Interest earned on contributions paid into the Deposit Protection Fund established under the Banking Act. (Par 40)
  • Interest paid on loans granted by the Local Government Loans Authority established by section 3 of the Local Government Loans Act. (Par 41)
  • Dividends received by a registered venture capital company, special economic zone enterprises, developers and operators licensed under the Special Economic Zones Act. (Par 46)
  • Gains arising from trade in shares of a venture company earned by a registered venture capital company within the first ten years from the date of first investment in that venture company by the venture capital company:
    • Provided that the venture company has not been listed in any securities Exchange operating in Kenya for a period of more than two years. (Par47)
  • Interest income generated from cash flows passed to the investor in the form of asset-backed securities. (Par 52)
  • Dividends paid by Special Economic Zone Enterprise, developers or operators to any non-resident person. (Par 55)
  • Compensating tax accruing to a power producer under a power purchase agreement. (Par 56)

Exempt Securities now TAXABLE.(1st Schedule Part II)

SECURITIES, THE INTEREST ON WHICH IS EXEMPT FROM TAX in Part II are now taxable. 
They Are:
  1. Interest payable to non-resident persons on following securities: Kenya Government, Nairobi City Council, East African High Commission.
  2. The income of Sceptre Trust Limited accrued in or derived from Kenya from interest payable by the Government.
  3. Income of the International Bank for Reconstruction and Development accrued in or derived from Kenya from interest payable by the Government.
  4. Income of the Colonial Development Corporation accrued in or derived from Kenya from interest payable by the Government on a loan.
  5. Income of the Life and Casualty Insurance Company of Tennessee, a company incorporated in the United States of America.
  6. Income of Kreditanstalt fur Wiederaufbau a statutory Corporation incorporated in the Federal Republic of Germany.
  7. Income of SIFIDA INVESTMENT COMPANY S.A., a company incorporated in Luxembourg
  8. Income of the Export Development Corporation of Canada in so far as that income represents interest accrued accrued in respect of or derived from a loan agreement.
  9. The income of Export-Import Bank of the United States.
INVESTMENT ALLOWANCE.(2nd Schedule)
The whole 2nd Schedule “DEDUCTIONS IN RESPECT OF CAPITAL EXPENDITURE ON…..” has been repealed (except Paragraph 24E which will remain in force till 31-12-2021)
Deduction of investment allowance
    • (a) Buildings— 
  • Hotels, manufacturing buildings, Hospitals, Petroleum or gas Storage facilities - 50% in the first year of use  then 25%pa on Reducing Balance on their Residual values. 
  • Educational buildings & hostels, Commercial building- 10%pa, on reducing balance
    • (b) Machinery- 
  • Manufacturing Machine, Hospital equipment, Ships or aircrafts - 50% on 1st Year of use then 25%pa on Reducing Balance on their Residual values.
  • Motor vehicles and heavy earth moving equipment, Computers hardware & software calculators, copiers and duplicators, Filming equipment- 25%pa on Reducing Balance
  • Furniture and fittings, Tele communications equipment, Other machinery, 10%pa, on reducing balance
  • Machinery used to undertake prospecting & mining right- 50% in first year of use and 25pa, on reducing balance.
    • (c) Purchase or an acquisition of an indefeasible right to use fibre optic cable by a telecommunication operator - 10% per year, on reducing balance.
    • (d) Farmworks - 50% in the first year of use and 25% per year, on reducing balance.
In summary:
    • 50% in the first year of use on: 
  • Buildings: Hotels, manufacturing buildings, Hospitals, Petroleum or gas Storage facilities, 
  • Machinery: Manufacturing Machine, Hospital equipment, Ships or aircrafts,
  • Machinery used to undertake prospecting & mining rights.
  • Farm-works
    • 25%pa on Reducing Balance on:
  • Residual values of all items above.
  • Motor vehicles and heavy earth moving equipment, Computers hardware & software calculators, copiers and duplicators, Filming equipment-
    • 10% per year, on reducing balance:
  • Machinery: Furniture and fittings, Tele communications equipment, Other machinery,
  • Buildings: Educational buildings & hostels, Commercial building.
  • Purchase or an acquisition of an indefeasible right to use fibre optic cable by a telecommunication operator.

RATES OF PERSONAL RELIEFS AND TAX-3Rd Schedule Changes

  • Personal relief increased from Ksh 16,896 to Ksh 28,800
  • PAYE bands changed 2 times and 15%and 20% Scrapped in 2021.
  • Rates scrapped for companies: 
    • listed on any securities exchange approved under the Capital Markets Act with at least; 20%, 30%, 40% shared capital.
    • introducing its shares through listing or any securities exchange via introduction.
    • operating a plastics recycling plant.
  • For non-residents:
    • Dividend WHT rate has been increased from 10% to 15% (Excluding EAC).
    • Reinsurance premium added insurance premium now attracts WHT @5%. 
    • sales promotion, marketing, advertising services, and transportation* of goods (excluding air and shipping transport services) attracts WHT @20%.  (*Excluding EAC)
  • WHT For  Residents:
    • Pension withdraws :-
    • --after expiry of 15years in excess of the tax free amount (Ksh300K):
      • Every 400K is taxable at 10%,15%,20%,25% and 1.6M @30%. Reinstated in 2021.
      • The top band was reduced to 1.2M at 25%(April to December 2020)
    • --before the expiry of fifteen years in excess of the tax free amount(Ksh300K):
      • -This has changed as per changes in PAYE bands
    • by employer from registered fund : Rates changed to 25% then reinstated to 30%.
  • Turnover tax rate reduced from 3% to 1%.
VAT
Exempt Goods on Transition(Now excise duty included) wef 15/5/2020:
  • This is set out in Section B of Part I of the First Schedule at 8% of the taxable value, effective from the date of assent ( 9th June 2016) for 3 years. 
  • Taxable value in respect of these goods shall now include excise duty, fees and other charges.

Credit Notes disputes:
Additional regulation with regards to issuance of credit notes:
  • Incase of a commercial dispute in court regarding price payable, a supplier is now allowed to issue Credit note 30days after the determination of the case.
  • Usually credit notes are issued only within six months after the issue of the relevant tax invoice

Refund of tax on bad debts time shortened to 1year up from 2years :
  • The time to apply for a VAT refund on bad debts is usually after 3years and before 5 years.
  • This has been revised to after 3 and before 4 years.
Every person/taxpayer to Keep records
  • The ACT initially required "Every registered" to keep for a period of five years from the date of the last entry made therein.
Exempt goods(part-A) now taxable. (*Taxable now exempt)
  • Plants and machinery of chapter 84 and 85 used for the manufacture of goods. 
  • Taxable supplies, excluding motor vehicles, imported or purchased for direct and exclusive use in the construction of a power generating plant, by a company, to supply electricity to the national grid.
  • Taxable supplies, procured locally or imported for the construction of LPG storage facilities with a minimum capital investment of  sh.4b and a minimum storage capacity of 15K metric tonnes.
  • *Several medicaments and vaccines are now exempt 
  • Plastic bag biogas digesters, Biogas, Leasing of biogas producing equipment. p52
  • Parts imported or purchased locally for the assembly of primary school laptop tablets computer. p53
  • Taxable goods purchased or imported for direct and exclusive use in the construction and infrastructural works in industrial and recreational parks of 100 acres or more. 5p5
  • Museum and natural history exhibits and specimens and scientific equipment for public museums. p60
  • Chemicals, reagents, films, film strips and visual aid equipment imported or purchased prior to clearance through the customs by the National Museums of Kenya. p61
  • Goods falling under tariff number 4907.00.90 .(p88)
  • Materials and equipment for the construction of grain storage. (p93)
  • The transfer of a business as a going concern by a registered person to another registered person. (s94)
  • *Personal protective equipment, including facemasks, for use by medical personnel in registered hospitals and clinics, or by members of the public in the case of a pandemic or a notifiable infectious disease. (s96A)
  • Taxable goods supplied to marine fisheries and fish processors . (s.97) 
  • Goods imported or purchased locally for direct and exclusive use in the implementation of projects under a special operating framework arrangements with the Government.  (s102)

Part II-Exempt Services now taxable. (*Taxable now exempt)
  • Insurance agency, insurance brokerage, stock exchange brokerage ,securities brokerage services. (10)
  • Taxable services provided for direct and exclusive use in the construction and infrastructural works in industrial and recreational parks of 100 acres or more. (22)
  • Taxable services, procured locally or imported for the construction of LPG storage facilities with a minimum capital investment of 4B shillings and a minimum storage capacity of 15thousand metric tonnes. (28)
  • Asset transfers and other transactions related to the transfer of assets into real estate’s investment trusts and asset backed securities. (30)
  • Services imported or purchased locally for direct and exclusive use in the implementation of projects under special operating framework arrangements with the Government. (31)

SECOND SCHEDULE 2 -ZERO-RATING PART C-Repealed
This has been repeal and most of the medicaments there are now exempt under 1st schedule part(II).



EDA

PART II – EXCISABLE SERVICES 
Pursuant 1st Sch Part(ii)(4), Excise duty on other fees charged by financial institutions shall be 20% of their excisable value.

The TLAA 2020, as redefined "other fees" by substituting "licensed financial institutions" with "licensed activities"
"other fees" includes any fees, charges or commissions charged by financial institutions relating to their licensed financial institutions licensed activities, but does not include interest on loan or return on loan or fees or commissions earned in respect of a loan or any share of profit or an insurance premium or premium based or related commissions specified in the Insurance Act or regulations made thereunder.


EXEMPT EXCISABLE GOODS (2nd Sch.Part A) No longer exempt
  • Goods imported or purchased locally for direct and exclusive use in the implementation of projects under special operating framework arrangements with the Government. 
  • One personal motor vehicle, imported by a public officer returning from a posting in a Kenyan mission abroad and another motor vehicle by his or her spouse.


TPA
1-Private ruling changes
  • Private ruling time.
    • Commissioner shall issue a private ruling to an applicant within 60 days of receiving an application for a private ruling under this section (s.65). Initially this was 45 days.
  • Publication of private rulings
    • The Commissioner is required to publish a ruling made under section 67 in at least 2 daily newspapers with a national circulation except that the identity of the applicant to whom the ruling relates shall not be published.
    • This has been repealed
2-TOT penalty reduced
    • Late submissions of TOT return is KES 1000, down from 5000.
    

MFALAct
 1- Railway development levy scope expanded to cover operations too.
  • This is levied on all goods imported into the country for home use.
  • Rate: 5%  of the customs value of the goods and shall be paid by the importer.
  • Purpose: to provide funds for the construction and operation  of a SGR network. 
  2-Introduction of Processing fees on duty free motor vehicles .
  • It affects all motor vehicles excluding motorcycles imported or purchased duty free prior to clearance through customs under the 5th Schedule to the EAC Customs Management Act, 2004.
  • The fee is KES10,000 :
  • Applicable to all MVs specified in paragraphs 4, 5, 6, 7, 8, 9, 10 and 11 of Part A, and paragraph 3 and 5 of Part B under the Fifth Schedule to the EAC Customs Management Act, 2004. 
  • Refer below(The exemptions regime)
    • 4-Diplomatic and First arrival privileges.
    • 5-Donor agencies with agreements with partner states.
    • 6-International and regional organisations.
    • 7-War Graves commission.
    • 8-Disabled ,Blind and physically handicapped persons.
    • 9-Rally drivers.
    • 10-Goods and equipment for use in Aid Funded Projects.
    • 11- ***not updated in the ACT*
    • B-3-Deceased person's effects
    • B-5-Passsengers baggage and personal effects.
3-SECOND SCHEDULE- PART A 
This sets out goods that are exempt from payment of import declaration fee when imported or purchased before clearance through customs:
The following are deletions from or addition** to this:
  • gifts or donations, excluding motor vehicles, by foreign residents to their relatives in Kenya for their personal use;
  • samples which in the opinion of the Commissioner have no commercial value;
  • raw materials for direct and exclusive use in construction by developers or investors in industrial parks of one hundred acres or more located outside the municipalities of Nairobi and Mombasa as approved by the Cabinet Secretary upon recommendation by the Cabinet Secretary responsible for matters relating to industrialization.
  • xxia(missing in my old ACT)

3-SECOND SCHEDULE- PART B
This sets out railway development levy shall not apply to goods imported or purchased before clearance through customs:
  • (v) raw materials for direct and exclusive use in construction by developers or investors in industrial parks of one hundred acres or more located outside the municipalities of Nairobi and Mombasa as approved by the Cabinet Secretary upon recommendation of the Cabinet Secretary responsible for matters relating to industrialization.
  • (va)
  • (vii)


More Changes to 
-KRA ACT
-Retirement Benefit ACT




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