News Flash July 2019 – KENYA – 2019-2020 Budget Speech

Kenya Budget Speech for 2019/2020

On 13 June 2019 the Kenya Cabinet Secretary delivered the budget speech themed โ€œCreating Jobs, Transforming Lives โ€“ Harnessing the โ€˜Big Fourโ€™ Planโ€, i.e. universal health, affordable housing, increasing manufacturing to the economy, and improving food and nutrition security.

Highlights:

  • The Finance Bill 2019, which contains the taxation measures announced in the Cabinet Secretaryโ€™s Budget speech, as well as other measures not announced in the speech, was tabled. The Finance Bill 2019 illustrates the governmentโ€™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.
  • Kenyaโ€™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 employeeโ€™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 employeeโ€™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.

Contact our legislation team atย info@crs.co.zaย if you require any additional information.

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