Good news as Covid-19 tax reliefs to stay

Kenyans will continue enjoying the current tax relief extended by the government to cushion households and businesses against the Covid-19 pandemic for another three months. 

But, some other tax reductions will be in place for much longer as they will lapse in July next year to coincide with the end of the government’s financial year.

This is after President Kenyatta directed the Treasury to consider retaining the Value Added Tax (VAT) rate at 14 per cent until July 1, 2021.

VAT is charged on supply of taxable goods and services made or provided in Kenya. It’s also levied on imported taxable goods or services into Kenya, accounting for one of the major determinants of the cost of goods in the country.

The President also asked the Treasury to retain the income tax rate, also known as Pay As You Earn, and the resident income paid by companies at 25 per cent until January 1, 2021.

100 per cent tax relief

He further asked Treasury to retain the 100 per cent tax relief for people earning a gross monthly pay of up to Sh24,000 beyond the end of the year, which was the deadline for the tax holiday.

Reduced turnover tax

Small businesses will also continue paying a reduced turnover tax. “To continue cushioning our micro, small and medium enterprises, the Treasury considers maintaining the reduction of the current turnover tax from three per cent to one per cent,” the President said at the end of yesterday’s Covid-19 conference.

To enhance access to credit for small businesses, Mr Kenyatta directed Treasury to speed up the roll-out of the credit guarantee scheme in partnership with participating banks and development partners.

“The credit guarantee scheme as approved by Cabinet is a risk-sharing partnership between the government and the banks, which will afford our enterprises across the country access to credit,” he said.

President Kenyatta added this would increase the amount the country can lend to the sector by an additional Sh100 billion. Treasury Cabinet Secretary had initially said the relief would end when the pandemic is dealt with.

Cash transfers

Already, Labour and Social Protection Cabinet Secretary Simon Chelugui has indicated that the cash transfers to poor households will be terminated in the first week of October when funds will dry up.

This will end six months of social safeguards to the poor. The government has been sending about Sh1.3 billion every month.

Since May, some 341,958 households have received the weekly Sh1,000 stipend to cushion them from the economic hardships caused by the pandemic.

The CS said the initial Sh10 billion allocated for the cash transfer scheme was disbursed to recipients by the Interior ministry via M-Pesa. The CS said the weekly cash transfer programme targeted 669,000 households.

Central Bank of Kenya (CBK) has allowed consumers until the end of the year to enjoy free transactions for Sh1,000 and below as well as free bank transactions.

The banking sector regulator said a significant increase in the use of mobile money channels by individuals in both value and number of transactions was noted after mobile operators removed the transaction charges. “Most of the increase was in low-value transactions of Sh1,000 or less” — a band that accounts for over 80 per cent of mobile cash transactions.

Elimination of charges helped cushion the most vulnerable households, CBK said.

“Moreover, more than 1.6 million additional customers are now using mobile money channels. However, business-related transactions have declined marginally,” the regulator said.

These measures were timely and highly effective in facilitating official and personal transfers at a time of great need, CBK added.

“Further, CBK assesses that the increased wallet and transactions limits have led to increased usage at higher amounts and greater convenience,” it said.

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