KENYA 2018/2019 Budget Speech
The Cabinet Secretary for National Treasury and Planning, Hon. Henry Rotich, presented the Budget Statement for the fiscal year 2018/2019 to Parliament on 14 June 2018.
The 2018/2019 budget focuses on the Government’s Big Four Agenda, whose key pillars are improving Manufacturing, Improving Food Security, Universal Health Coverage and Affordable housing.
The economy grew at a rate of 4.9%, falling below the 5.6% average growth rate achieved over the last 5 years. The drought and the lengthy electioneering period in 2017 were mentioned among the factors attributed to this.
The tax measures proposed in the Budget Statement mainly affect indirect taxes, as the Income Tax Act is set for an overhaul through the Income Tax Bill 2018, which is expected to be tabled Parliament in July. The draft Income Tax Bill was released to the public on 15 May 2018 with a call for comments prior to finalization and submission of the Bill to Parliament.
Key Highlights of the proposed Income Tax Measures:
- Removal of proposed new tax bracket: the proposal in the Income Tax Bill 2018 to introduce a new tax rate of 35% bracket for persons with a monthly income of KES 750,000 or more has been revoked, therefore, the current PAYE bands will remain the same.
- The proposal in the Income Tax Bill to increase the rate of capital gains tax (CGT) from 5% to 20% has been revoked.
- Replaced turnover tax with a presumptive tax based on the business permit or trading license fees at a rate of 15%.
- Withholding tax rate of 20% for payments for demurrage charges made to non-resident persons.
- Introduced capital gains tax of 5% on transfer of property by general insurance companies
- Withholding tax rate of 5% on insurance premium paid to non-residents excluding for insurance of aircraft.
- Introduction of tax on untaxed distributed profits to replace compensating tax.
- Expansion on the transactions giving rise to dividend subject to withholding tax.
- VAT exemption on Parts Imported or purchased locally for the assembly of computers to encourage local manufacture, innovation and job creation
- VAT exemption of equipment to be used in the construction of grain storage facilities to support safe storage of food.
- VAT exemption for raw materials for animal feeds to make animal feeds affordable to farmers and attract investors.
- Introduced an export levy of 20% on copper waste and scrap to protect local manufacturers.
- Late payment interest increased from 1% of the principal tax due to 2%.
- Late payment penalty for late payment of tax has been set at 20% of the tax due.
- Amendment of the Banking Act to repeal section 33B of the Banking Act to remove the interest rate cap for lending by banks and financial institutions.
- Introduction of a Financial Market Conduct Bill to deal with inadequacies in consumer protection and unregulated lending in the financial sector.
Amendment of the Employment Act to provide that an employer shall contribute to the National Housing Development Fund, in respect of each of their employees, 0.5% of the employee’s gross monthly emolument subject to a maximum of KES 5,000 while the employee will contribute 0.5% of their monthly gross earnings.
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