Kenya COVID-19 Fiscal and Tax Measures, March 25, 2020

The Government of Kenya has announced new fiscal and tax measures to cushion Kenyans and businesses following the COVID-19 pandemic as contained in President Uhuru Kenyatta’s address to the Nation on March 25, 2020.

Tax Measures

• The National Treasury to implement the following immediate reliefs:
  1. 100% tax relief for persons earning a gross monthly income of up to KShs.24,000;
  2. Reduction of Income Tax Rate (Pay As You Earn (PAYE)) from 30% to 25%;
  3. Reduction of Resident Income Rate (Corporation Tax) from 30% to 25%; and
  4. Reduction of Turnover Tax rate from the current 3% to 1% for all Micro, Small and Medium Enterprises (MSMEs).
• The National Treasury to cause a reduction of the VAT from 16% to 14% effective April 1, 2020.

Verified VAT Refund Claims

The Kenya Revenue Authority to expedite the payment of all verified VAT refund claims amounting to KShs.10 billion within three weeks or in the alternative allow the offsetting of withholding VAT to improve cash flow for businesses.

Lending Central Bank Rate, Cash Reserve Ratio, etc.

• The Central Bank of Kenya rolled out the following additional measures:
  1. The lowering of Central Bank Rate from 8.25% to 7.25%, expected to prompt commercial banks to lower the lending interest rates and avail much more affordable credit to MSMEs across the country;
  2. The lowering of the Cash Reserve Ratio from 5.25% to 4.25% to provide additional liquidity of KShs.35 billion to commercial banks to directly support distressed borrowers;
  3. The Central Bank of Kenya to provide flexibility to banks concerning requirements for loan classification and provision of loans that were performing as at March 2, 2020 and whose repayment period was extended or restructured due to the COVID-19 pandemic.

Labour and Social Protection Scheme

Appropriation of an additional KShs.10 billion to the elderly and orphans and other vulnerable members of the society through cash-transfers by the Ministry of Labour and Social Protection;

Listing with the Credit Reference Bureaus

Temporary suspension of the listing with Credit Reference Bureaus (CRB) of any person, MSMEs or corporate entities whose loan accounts fall overdue or are in arrears.  It is not clear for how long the temporary suspension will be in place.

Pending Bills

1. All ministries and departments to cause the payment of at least Shs.13 billion of the verified pending bills within three weeks from March 25, 2020.
2. Similarly, the President encouraged the private sector to clear all outstanding payments among themselves within three weeks to improve liquidity in the economy and ensure businesses remain afloat by enhancing their cash flow.

Universal HealthCare

KShs.1 billion from the Universal Health Coverage kitty be immediately appropriated strictly towards the recruitment of additional health workers to support the management of the spread of COVID-19. The President ordered the Ministry of Health, the County Governments and the Public Service Commission to expedite the recruitment process.

Reduction of Senior National Executive Salaries

1. In sharing the burden occasioned by the global health pandemic, the President affirmed that his administration had offered a voluntary decrease in the salaries of the senior ranks of the national executive as follows:
   1. The President and Deputy President – 80%;
   2. Cabinet Secretaries- 30%;
   3. Chief Administrative Secretaries – 30%; and
   4. Principal Secretaries- 20%.

State and Public Officers Working from Home

All state and public officers with pre-existing medical conditions or aged 58 years and above, serving in Job Group S and below or their equivalents take leave or immediately work from home, excluding personnel in the security sector and other essential services as outlined in the circular issued to the public service on March 16, 2020.

Daily Curfew

1. As from Friday, March 27 2020, a daily curfew from 7 p.m. to 5 a.m. shall be in effect in the territory of the Republic of Kenya with movement prohibited between those hours. Those exempted from this curfew include medical professionals, health workers and other critical and essential services.
2. Parliament (comprising of the National Assembly and the Senate) will hold special sittings from March 31, 2020, to deliberate on the tax breaks and other COVID-19 measures announced by the President.

Conclusion

The measures are welcome, and we expect the legislature to act within the published timelines to make the necessary amendments to the Income Tax Act (Cap. , the Value Added Tax Act and other relevant statutes, rules and regulations.  It is welcome that Parliament will hold special sittings from March 31, 2020, to deliberate on the tax breaks and other COVID-19 measures announced by the President.

Dr. Benjamin Musau

I am a Kenyan Advocate and the Managing Partner of B M Musau & Co., Advocates, a position I have held since 1999. My work encompasses regulatory reforms, reduction of administrative burdens, the structure of business entities, joint ventures, acquisitions, banking, foreign investment and other general corporate areas