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Tax Alert: Government Interventions to Cushion Kenyans against COVID-19

The coronavirus (COVID-19) presents an alarming health and economic crisis that Kenya and the world is grappling with. As businesses respond to the impact and uncertainties arising from the virus, it is important to stay on top of the economic relief programs that governments are instituting to cushion affected persons from the economic and social disruption caused by the virus.

On 25 March 2020, the President of the Republic of Kenya outlined the tax interventions the government intends to make to cushion the country against the economic effects of the COVID-19:

100% Tax Relief for “low income earners”

The government has proposed a 100% tax relief for persons earning gross monthly income of up to KES 24,000. This category of people is generally classified as “low income earners” and the proposal will channel additional disposal income to this group. The additional income for a person earning a monthly income KES 24,000 is approximately KES 1,700 per month.

Reduction of highest PAYE band

The government has also proposed to reduce the top Pay-As-You-Earn (PAYE) rate from 30% to 25%. This incentive is expected to align with the 100% tax relief for low income earners, allowing the government to channel additional resources to cushion the affected individuals from the impact of the virus. It is however not clear from the statement whether persons earning between KES 24,000 and the top tax rate threshold of KES 47,059 will get a tax relief on their income. In our view, the best way to provide the tax incentive would be to apply the 5% PAYE rate reduction across all the PAYE tax bands.

Reduction of corporate tax

On 23 March 2020, the Central Bank of Kenya (CBK) noted that due to the pandemic, it expected the economy to grow by a lower rate of 3.4%. While this rate appears optimistic considering recent events, it is still the lowest economic growth that the country has achieved since 2008. It is for this reason that the government has proposed a reduction of the resident corporate income tax from 30% to 25% to allow companies additional resources to sustain their operations in this difficult time. For a number of businesses that have lost their key markets or been forced to shut down operations, the proposal may not yield immediate results unless it is sustained for a number of years after the end of the current crisis to assist the businesses with the recovery process.

Read more on the alert.