By Matthew Magare

The Tax Laws (Amendment) (No. 2) Act No 22 of 2020 (the “Act”) was assented to on 23 December 2020 and came into effect on 1 January 2021.

The Act’s primary effect was to reverse the reliefs provided under the Tax Laws (Amendment) Act 2020 that was assented following the COVID – 19 pandemic.

The Act provides for the following tax amendments:

Individual Income Tax

Income Band Tax Rate

On the first Ksh 288,000 10%

On the next Ksh 100,000 25%

Above Ksh 388,000 30%

The applicable monthly personal relief is Ksh 2,400 per month or Ksh 28,800 annually.

Corporate Tax

The Corporate Tax is amended from 25% to 30% in respect of income earned from 1 January 2021.

Tax on pension after expiry of 15 years

The following tax rates shall apply in respect of payment of a pension or a withdrawal of pension (after expiry of 15 years from the date of joining the fund) or upon attainment of the age of 50 years or upon earlier retirement from a registered pension fund:

Income band Tax Rate

On the first Ksh 400,000 10%

On the next Ksh 400,000 15%

On the next Ksh 400,000 20%

On the next Ksh 400,000 25%

On all income above 30%

Ksh 1,600,000

Tax on pension before the expiry of 15 years

The tax in respect of a withdrawal before the expiry of fifteen years from a registered pension fund is as follows:

Income band Tax Rate

On the first Ksh 288,000 10%

On the next Ksh 100,000 25%

Above Ksh 388,000 30%

Value Added Tax

The rate of Value Added Tax was amended from 14% to 16% with effect from 1 January 2021 vide the Value Added Tax (Amendment of the Rate of Tax) Order 2020 which was published on 2 December 2020. The first return under the new rate is due by 20 February 2021.

Minimum Tax

The Finance Act 2020 introduced the Minimum Tax. Minimum Tax is 1% of the gross turnover of a company. The following incomes are exempt from Minimum Tax: Income exempted by the Income Tax Act, employment income, income subject to Residential Rental Income Tax, income subject to Turnover Tax, income subject to Capital Gains Tax and Income of the extractives sector.

The amendment Act also excluded income from business whose retail price is controlled by the Government and income from insurance business from the Minimum Tax.