President Uhuru Kenyatta assented to law the Tax Laws Amendment (No.2) Act, 2020 (TLAA 2) on 22nd December 2020. The TLAA 2 reverses tax incentives introduced by the Tax Laws Amendment Act, 2020 to cushion Kenyans against the adverse economic impact of Covid-19. These included reduction of the corporate income tax rate from 30% to 25%, reduction of the VAT rate from 16% to 14% and reduction of the tax on the highest individual income band from 30% to 25%.
In their presentation to Parliament, the National Assembly Departmental Committee on Finance and National Planning (Finance and Planning Committee) argued against requests by various stakeholders to retain the tax incentives on account of the subdued economy which is yet to recover from the impact of Covid-19. The Committee was of the view that with the relaxation of the Covid-19 containment measures, the economy had returned to relative normalcy while tax collections continued to underperform. In their view, the relaxation necessitated the reversal of the tax rates to enhance revenue growth which has significantly underperformed, putting the government under pressure to meet its commitments.
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