Bye 2020, hello 2021 and the financial changes you bring

A man calculating his financial expenses

A man calculating his financial expenses.

Photo credit: Fotosearch

What you need to know:

  • Here are the financial changes you can expect starting January 2021.

Normal life is set to officially resume on January 1, 2021. An opinion poll released by TIFA Research recently shows that a majority of Kenyans will get through the December holidays by travelling and spending less compared to previous years.

This is because they are still concerned about catching Covid-19, but remain optimistic due to news of different vaccines that are now being distributed.

Higher taxes

The government is also set for 2021. Just this week, President Uhuru Kenyatta assented the Tax Laws Amendment Bill that rolls back some of the tax reductions that cushioned Kenyans during the Covid-affected year. The top tax rate goes back to 30 per cent from per cent, and VAT goes back to 16 per cent from 14 per cent. At the other end, the tax relief for low-income earners has been retained. 

This move to cushion vulnerable groups and households also extended into banking and mobile money, as the central bank ruled that transfers of less than Sh100 will remain free, as will transfers between bank accounts and mobile money platforms. 
 
Are these measures enough? We shall see. It is obvious to anyone, except BBI champions, that were we are in a budget crunch. A November 2020 International Monetary Fund report mentioned extending credit to Kenya while protecting vulnerable groups and raising tax revenues, as well as tackling structural reform and governance at some State-owned enterprises.

Online tax

What else changes in a week’s time?

January will see the start of the era of a digital services tax (DST) that will be levied on items such as downloads, streams, e-books and web hosting. The new guidelines have financial transactions, foreign exchange, digital loans, and transactions on government platforms as exempt, but every other charge on a digital platform will incur the 1.5 per cent tax. 

This also affects foreign companies in Kenya and is part of a global wave by countries to extract a slice from borderless platforms such as Uber, Netflix and Amazon.

Turnover tax

A turnover tax era is also set to begin in January. It targets firms that do business in the country but never turn a profit. They will now have to fork out a 1 per cent tax on their turnover, four times a year. It does not cover employment income, rental income, oil and mining exploration. 

Good tidings

There are also some good tidings in January: 

A new voluntary tax disclosure programme from the Kenya Revenue Authority starts on January 1. It welcomes anyone who may have had undisclosed income between June 2015 and December 2020 to make a declaration and commit to paying the principal tax within one year. In exchange, they will not incur any interest, penalties and be granted immunity from prosecution. 

This is a three-year programme, and in 2022 the amount forgiven drops to 50 per cent, and finally to 25 per cent the following year. 

Companies will also be required to file statements about their true beneficial owners by January 31. This is to unravel their secret owners. Will this end the era of Covid billionaires and briefcase companies that win tenders without applying or qualifying for them? We shall see. 

CAK whistleblower programme

Also, in January, the Competition Authority launches a whistleblower programme for confidential informants to make disclosures on violations of Competition Law and provide information useful to the Authority for investigation. 

The external informant reward scheme is open to people who did not participate in decision making and are not under criminal investigation. They can be eligible to receive up to 1 per cent of the administrative penalty levied on the offender, but not more than Sh1 million. 
 
Finally, the much-heralded African Continental Free Trade Area (AfCFTA) kicks off on January 1, offering the chance for true trade and movement across Africa, the world’s biggest trading bloc. 

Ahead of this, the African Union, the European Union Commission and the International Trade Centre have launched a new platform to enable businesses to find and verify continent-wide trade opportunities. The African Trade Observatory is available in English and French, and later in Arabic and Portuguese. 

Happy New Year!