Quick Answer
On 25 March 2020 President Uhuru Kenyatta announced Covid-19 relief measures including cutting VAT from 16% to 14%, full tax relief for monthly incomes up to Sh24,000, reducing top PAYE and corporation tax from 30% to 25%, and lowering turnover tax from 3% to 1%, all effective 1 April 2020.
Key Takeaways
- VAT was reduced from 16 per cent to 14 per cent, effective 1 April 2020.
- 100 per cent tax relief was granted for people earning a gross monthly income of up to Sh24,000, with top PAYE cut from 30% to 25%.
- Resident income tax / corporation tax was reduced from 30 per cent to 25 per cent, and turnover tax from 3 per cent to 1 per cent.
- Liquidity measures included paying at least Sh13 billion of verified pending bills and expediting some Sh10 billion in VAT refund claims within three weeks, plus temporary suspension of CRB listing for distressed MSME and corporate borrowers.
- The Central Bank of Kenya lowered the CBR to 7.25% from 8.25% and the cash reserve ratio to 4.25% from 5.25%, freeing about Sh35 billion in additional liquidity for banks.
Coronavirus: How President Uhuru plans to rescue businesses, individuals
Wednesday, April 1st 2020
The effects of Corona virus is being felt drastically across businesses and the economy in Kenya and globally.
On March 25 the President of Kenya Uhuru Kenyatta addressed the Nation and pointed the following points the government will ensure to see the effects of the virus are minimised for survival of businesses.
- Reduction in VAT rate from 16 per cent to 14 per cent effective April 1 2020.
- A 100 per cent tax relief for people earning a gross monthly income of up to 24,000.
- Reduction of Pay As You Earn (PAYE) from its current maximum of 30 per cent to 25 per cent.
- Reduction of resident income tax / corporation tax from 30 per cent to 25 per cent.
- Reduction of current rate of turn over tax from 3 per cent to 1 percent.
Other Insights
- The government will appropriate an additional Sh 10 billion to the elderly, orphans and other vulnerable members of the society through cash transfers by the Ministry of Labour and Social Protection to cushion them from the adverse effects of Covid-19.
- Temporary suspension with Credit Reference Bureau of any person from Micro, Small and Medium Enterprises as well as corporates whose loan accounts fall due or in arrears effective April 1 2020.
- All ministries and departments shall cause the payment of at least Sh13 billion of the verified pending bills within 3 weeks of the date hereof to improve liquidity in the economy and ensure businesses remain afloat by enhancing their cash flows.
- Kenya Revenue Authority shall expediate the payment of all verified VAT refund claims amounting to some Sh10 billion within 3 weeks or in the alternative allow for the offsetting of Witholding VAT in order to improve cash flows for businesses.
- Sh1 billion from the Universal Health Coverage kitty be immediately appropriated strictly to the appointment of additional health workers to support in the management of spread of Covid – 19.
- The management of the ferry service with immediate effect shall be vested in the National Police Service , Coast Guard and the National Government Administration Officers.
Central Bank of Kenya has rolled out the following measures: Lowering of CBR to 7.25 per cent from the prevailing 8.25 per cent, which will prompt commercial banks to lower interest rate to borrowers.
Lower of Cash reserve ratio to 4.25 per cent from the prevailing 5.25 per cent and this will provide additional liquidity of Sh35 billion to commercial banks that will enable to support borrowers that are distressed because of the economic effects of the virus.
It will provide flexibility to banks for loans extended or restructured due to the pandemic.
The writer Mohsin Adamjee is partner Nexia sj Kenya
Frequently Asked Questions
What happened to the VAT rate during Covid-19 in Kenya?
VAT was reduced from 16 per cent to 14 per cent, effective 1 April 2020, as part of the government's measures to cushion businesses and individuals from the effects of the pandemic.
How did the PAYE and corporation tax changes help individuals and businesses?
People earning a gross monthly income of up to Sh24,000 received 100 per cent tax relief, the top PAYE rate fell from 30% to 25%, and resident income/corporation tax was cut from 30% to 25%.
What relief was given to small businesses on turnover tax and loans?
Turnover tax was reduced from 3 per cent to 1 per cent, and there was a temporary suspension of Credit Reference Bureau listing for MSMEs and corporates whose loan accounts fell due or into arrears from 1 April 2020.
What did the Central Bank of Kenya do to support borrowers?
The CBK lowered the Central Bank Rate to 7.25% from 8.25% to prompt lower lending rates and cut the cash reserve ratio to 4.25% from 5.25%, providing about Sh35 billion of additional liquidity and flexibility to restructure pandemic-affected loans.