On the 24th December 2020, the Tax Laws (Amendment) No. 2 Act of 2020 (“the Act”) was published. The Act brought about changes to the rates for employment income and corporation tax. Also in December, the Legal Notice 206 of 2020 (on Value Added Tax) was published and amended the VAT rate.
The Kenyan Revenue Authority also published a public notice on the 4th of January 2021 to inform the public of the changes in tax rates and to clarify ant doubts taxpayers may have.
The following are all important changes and clarifications brought about by the Act and the notices.
A. Individual Income Tax Rates
With effect as from the 1st January 2021, the following tax rates should be applied to individual income tax. The first monthly PAYE return under the new rate shall be due by the 9th February 2021.
Tax Bands and Rates
1. On the First KShs 24,000 per month or KShs 288,000 per annum – the Rate is 10%
2. On the next KShs 8,333 per month or KShs 100,000 per annum – the Rate is 25%
3. On all income amounts in excess of KShs 32,333 per month or KShs 388,000 per annum – the Rate is 30%
The applicable monthly personal relief is KShs 2,400 per month or KShs 28,800 annually.
B. Pension Tax Bands
On any amount in excess of tax-free amounts:
On first KShs 400,000 – Annual Tax Rate is 10%
On next KShs 400,000 – Annual Tax Rate is 15%
On next KShs 400,000 – Annual Tax Rate is 20%
On next KShs 400,000 – Annual Tax Rate is 25%
On any amount in excess of KShs 1,600,000 – Annual Tax Rate is 30%
Note: For pension income withdrawn before expiry of 15 years of pensionable service, the new individual tax bands and rates are applicable on any amount withdrawn in excess of tax-free amount.
C. Corporation Tax
Applicable as from the 1st January 2021, the new tax rate is 30%
D. Value Added Tax
Applicable as from the 1st of January, the new tax rate is 16%.
The first return under the new rate is due by the 20th February 2021.
E. Minimum Tax
The rate of Minimum Tax is 1% of the gross turnover effective as from the 1st January 2021. The tax shall be payable by the 20th day of the 4th, 6th, 9th and 12th month of the accounting period. However, the Act introduced the following additional exemptions from Minimum Tax:
1. Persons engaged in business whose retail price is controlled by the government
2. Persons engaged in the insurance business