Kenya’s government has overhauled the country’s current income tax legislation framework and announced measures designed to help grow the economy, according to the Budget Statement for the fiscal year 2018/2019.
South African businesses with interests in- or ties with the East African country’s market must know that these changes (irrespective of how many are actually implemented) will impact operations going forward.
This is the warning issued by tax and payroll specialists at leading HR and HCM solutions provider CRS Technologies.
The Budget – announced by the Cabinet Secretary for National Treasury and Planning, Hon. Henry Rotich in parliament on 14 June 2018 – focuses on the Kenyan government’s ‘Big Four Agenda’, which includes improving manufacturing, improving food security, universal health coverage and affordable housing.
Sandra Maritz, Legislation Business Consultant at CRS Technologies, says that there are several points that South African business owners need to be cognisant of, but most pressingly is the proposed overhaul of the Income Tax Act through the Income Tax Bill 2018.
This will effectively table a number of reforms to tax related proposals under consideration.
“There are a number of interesting takeaways, including the removal of proposed new tax bracket and introduction of a new tax rate of 35% bracket for persons with a monthly income of KES 750,000 – this has been revoked and therefore the current PAYE bands will remain the same,’ says Maritz.
CRS Technologies explains that this is just one example of tax reform measures being tabled, along with the proposal to increase the rate of capital gains tax (CGT) from 5% to 20% which has been revoked, that are designed to reignite growth in the economy.
Another example of economic reformation is that of the National Housing Fund, and this will impact both employer and employee.
According to an amendment of the Employment Act, employers must contribute to the Fund in respect of each of their employees – and the law says this must be 0.5% of the employee’s gross monthly emolument, subject to a maximum of KES 5,000.
Employees must contribute 0.5% of their monthly gross earnings.
Once approved, the Fund will be the third kitty after National Hospital Insurance Fund and National Social Security Fund towards which salaried Kenyans will contribute on a monthly basis.
Kenya’s economy grew at a rate of 4.9%, short of the 5.6% average growth rate achieved over the last five years. Officials have attributed this to drought and the lengthy electioneering period in 2017.
The proposed income tax measures include: Withholding tax rate of 5% on insurance premium paid to non-residents excluding for insurance of aircraft, introduction of tax on untaxed distributed profits to replace compensating tax, late payment interest increased from 1% of the principal tax due to 2%, late payment penalty for late payment of tax has been set at 20% of the tax due, and amendment of the Banking Act to repeal section 33B of the Banking Act to remove the interest rate cap for lending by banks and financial institutions.
“Obviously all of these measures will require further consideration, but they are specific and the conclusion one could draw from the list is that the government is looking to build and effectively tighten up on spending. South African businesses that are stakeholders in Kenya’s market must understand the implications of these tax reforms and the processes involved in compliance,” Maritz adds.