Kenya Budget Speech for 2019/2020
On 13 June 2019 the Kenya Cabinet Secretary delivered the budget speech themed “Creating Jobs, Transforming Lives – Harnessing the ‘Big Four’ Plan”, i.e. universal health, affordable housing, increasing manufacturing to the economy, and improving food and nutrition security.
- The Finance Bill 2019, which contains the taxation measures announced in the Cabinet Secretary’s Budget speech, as well as other measures not announced in the speech, was tabled. The Finance Bill 2019 illustrates the government’s priorities to increase revenue mobilisation and focus on the digital marketplace.
- The Kenyan economy grew by 6.3% in 2018 compared with 4.9% in 2017, and is forecast to grow at 7% in 2019/2020 when the Big 4 Agenda gains momentum.
- Expenditures and net lending are projected at Ksh 2.8 trillion (25.7% of GDP), leaving a fiscal deficit, including grants, of Ksh 607.8 billion. In relation to GDP, this deficit translates to 5.6%, a decline from 6.8% in FY 2018/19 and 7.4% in FY 2017/18.
- Kenya’s public debt stands at Ksh 5.4 trillion.
Proposed Tax Measures (The Finance Bill 2019):
- Capital gains tax increases from 5% to 12.5% on gains from transfer of property.
- Introduction of withholding tax at 5% for residents and 20% for non-residents, on fees paid for services offered on commercial basis that are not subject to the withholding tax.
- Housing Fund income exempt from tax to promote affordable housing.
- Reduce corporation tax to 15% for the first five years of operation for companies operating plastic recycling plants.
- Amend Section 3 of the Income Tax Act by introducing a new paragraph under the charging section, which emphasises that income accruing through a digital marketplace (entities generating income through a digital marketplace/e-commerce) is chargeable to tax.
- Amend Section 7A of the Income Tax Act by substituting the current tax provision to ensure the distribution of dividends arising from exempt income does not trigger compensating tax.
- The Finance Bill proposes to delete Section 72D of the Income Tax Act that provides for a late payment penalty of 20% of any unpaid tax, applicable to all taxpayers.
- Exempt the income of the National Housing Development Fund from income tax by inclusion in the First Schedule to the Income Tax Act, effective 1 January 2020.
- Amend the affordable housing relief under the ITA to be computed at 15% of the employee’s contribution and not the gross emoluments as is currently provided, effective 1 October 2019.
- Amend the Taxation Procedures Act in relation to the penalty on tax payable under a return by adding a provision that tax already paid and withholding tax credits shall be considered in calculating the late submission penalties.
- Amend the Taxation Procedures Act to allow the Commissioner additional time to issue an objection where further information is requested from a taxpayer after filing an objection.
- Amend the Employment Act by deleting the definition of employee earnings and introducing a definition of basic salary, which is defined to mean an employee’s gross salary, excluding allowances and other benefits, effective 1 January 2020. This is aimed at providing clarity on the base amount for computing the levy payable under the National Housing Development Fund.
- No changes to income tax bands are proposed.
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